Iran's military fertilizer squeeze could cause problems for next year's grain harvests

PARIS/SINGAPORE – Farmers around the world are facing a second increase in fertilizer prices in four years because of the Iran war. But with grain prices too low to prevent a major surge in supply this time around, many are rethinking planting plans, putting global food production at risk.

The Middle East is a major fertilizer producer, and much of the world's fertilizer trade often passes through the Strait of Hormuz, which has halted traffic due to the conflict.

The supply of urea – a nitrogen-based fertilizer – from the world's largest production facility in Qatar has been suspended, and the flow of sulfur and ammonia, a common input for the fertilizer range, has also been denied.

As a solution to the conflict appears elusive, analysts, traders, fertilizer producers and agronomists are looking back at the last crisis, Russia's 2022 invasion of Ukraine, worried that this time things could get worse.

“Back in 2022, a lot of fertilizer was flowing,” said Shawn Arita of the Agricultural Risk Policy Center at North Dakota State University.

“It's getting more and more intense what we're seeing now.”

CASHED FEEDERS EXPERIENCE PRICE SPIKE
As fertilizer prices have soared since the start of the war in late February, urea has seen the sharpest price increase, reflecting the loss of about one-third of the world's traded volume that is usually shipped from the Gulf.

Others pay. India, the world's largest rice producer and second-largest sorghum grower, has booked volumes of urea in one import tender, paying almost double what it did two months ago.

But such prices are out of reach for many, say analysts.

In 2022, higher global grain prices help farmers offset sharp increases in input costs caused by the war in Ukraine. But large grain and oilseed harvests in recent years have reduced crop prices.

Chicago wheat prices are about half of what they were four years ago, for example. Soybeans were about 50% more than now.

As a result, many farmers today do not have the money to get balloon fertilizer loans.

Nitrogen-based fertilizers such as urea must be applied each season to most crops and have a direct impact on annual yields and quality parameters, including wheat protein content.

Farmers can reduce other important nutrients, such as phosphate and potash, without immediate yield loss.

Even that option could be tested, however, if phosphate markets see prolonged tightening, as China's export restrictions coincide with war-related disruptions in sulfur and ammonia feedstocks.

Finally, some farmers may “roll the dice” and reduce fertilizer application, putting yields at risk, said Andy Jung of US fertilizer group Mosaic MOS.N.

At least 2 million metric tons of urea production – equivalent to 3% of annual seaborne trade – have been lost since the conflict began, according to Sarah Marlow of commodity data provider Argus, as plants have been shut down in the Middle East as well as in India, Bangladesh and Russia.

About 1 million tons have already been loaded onto ships, which, for now, remain stuck in the Gulf.

Even if the conflict ends soon and the Strait of Hormuz reopens, just clearing the line will take weeks, said Mark Milam of commodity market intelligence firm ICIS.

And fertilizer supplies are likely to remain delayed for months due to damage to Gulf production facilities and competition from limited alternatives.

“It will take a while to get back to normal,” said Stephen Nicholson, Rabobank's head of North American grains and oilseeds.

GLOBAL FOOD PRODUCTION AT RISK
Many farms still have fertilizer on hand, while last year's record harvest boosted grain stocks around the world. The immediate impact of the current crisis on global food supply may therefore be limited.

Agricultural organizations, including the International Grains Council, are already reducing their forecasts for the next harvest, however. And the United Nations, which is trying to negotiate ship access to get fertilizer in the Gulf, has expressed concern about food security in developing countries.

By 2022, higher fertilizer costs have contributed to increased hunger in poor, dependent countries, and analysts say regions such as East Africa are at risk.

Australia may provide the first indication of the impact on global commodity production.

In the bread-basket region of Western Australia, one industry group now expects the area under wheat to fall by 14% as farmers move away from fertiliser, a low-yielding grain.

Farmers who still grow wheat may reduce the rate of fertilizer application.

“If we see a reduction in demand in Australia and we start to see expected yields come down, it would be a very bad sign for everyone's expectations,” said Matthew Biggin, senior commodities analyst at BMI.

In Brazil, the world's largest soybean producer, analysts expect farmers to use less fertilizer and possibly switch to cheaper, less effective products like ammonium sulphate.

Crops of Southeast Asian palm oil – the world's most produced edible oil, already facing tight supply – could also fall, and Amit Guha, an independent agronomist in Kuala Lumpur, warned that nutrient shortages posed a long-term risk to young trees.

In Europe, spring planting decisions are shifting against high-seeded corn in countries including France, while reduced supplemental nitrogen application may reduce the protein content of this summer's wheat harvest, analysts say.

The biggest risk, however, will come during the fall planting season, when European farmers can't cut all the grain.

“That's why we're starting to worry a little about the 2027 harvest,” said Benoit Fayaud of Expana. – Reuters