Iran war fertiliser squeeze could spell trouble for next year’s grain harvests

“Farmers around the world are facing the second surge in fertiliser prices in four years due to the Iran war. But with grain prices too low to cushion the blow from the deeper supply crunch this time around, many ‌are rethinking planting plans, putting global food production at risk. The Middle East is a leading fertiliser production hub, and much of the ​global fertiliser trade typically passes through the Strait of ‌Hormuz, which has seen traffic brought to a standstill by the conflict. Supplies of urea -- a nitrogen-based fertiliser -- from the world’s largest ‌production facility in Qatar have been halted, and flows of sulphur and ‌ammonia, common inputs for a range of fertilisers, have also been ‌curbed. With a resolution of the conflict proving elusive, analysts, traders, fertiliser producers and agronomists are looking back at the last supply crisis, Russia’s 2022 invasion of Ukraine, worried that this time things could get even worse. “Back in 2022, a lot of the fertiliser was ultimately flowing through,” said Shawn Arita of the Agricultural Risk Policy Center at North Dakota State University. “It’s a much steeper supply crunch that we’re seeing now.” As fertiliser prices have jumped since the onset of the war in late February, urea has seen the sharpest price spike, reflecting the loss of the roughly one-third of globally traded volumes typically exported from the Gulf. Some are paying. India, the world’s largest rice producer and second-biggest wheat grower, has booked record volumes of urea in a single import tender, paying nearly twice as much as it did just two months ago. But such price levels are ​beyond the reach of many, analysts say. In 2022, high global grain prices helped farmers offset the steep increase in input costs caused by the Ukraine war. But ample harvests of grains and oilseeds in recent years have restrained crop prices. Chicago wheat prices are roughly half what they were four years ago, for example. Soybeans were nearly 50% higher ‌than now. As a result, many growers today lack the revenue to absorb ballooning fertiliser bills. Nitrogen-based fertilisers ​such as urea must be applied each season for many crops and directly influence annual yields as well as quality parameters, ​including protein content in wheat. Farmers can cut back on other core nutrients, such as phosphate and potash, without immediate yield losses. At least 2mn metric tonnes of urea production -- equivalent to some 3% of annual seaborne trade -- have been lost since the conflict began, according to Sarah Marlow of commodity data provider Argus, as plants shut down in the Middle East as well as in India, Bangladesh and Russia. Nearly 1mn tonnes already loaded on vessels, meanwhile, remain stuck in the Gulf. Even if hostilities end soon and the Hormuz strait reopens, just clearing the queue will take weeks, said Mark Milam of commodity market intelligence firm ICIS. And fertiliser availability will likely remain constrained for months due to damage to Gulf production facilities and competition for ‌limited alternative supplies. “It’s going to take a while to ‌get back to normal,” said Stephen Nicholson, Rabobank’s head of North American grains and oilseeds. Many farms still have fertilisers on hand, while record harvests last year have boosted global grain stocks. So the immediate impact of the current crisis on global food supplies may be limited. In 2022, high fertiliser costs contributed to exacerbated hunger in poor, import-dependent countries, and analysts say regions like East Africa are again vulnerable. In Europe, spring planting decisions are shifting against input-intensive corn in countries including France, while reduced top-up nitrogen applications may trim protein content in this summer’s wheat harvest, analysts said. The larger risk, however, will come during autumn planting, when cash-strapped European farmers could cut overall grain area. “That’s why we’re starting to get a little worried about the 2027 ‌harvest,” said Benoit Fayaud of Expana.

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