Fertilizer prices surge amid Iran war, sparking food security warnings

Farmers within the northern hemisphere are heading into the essential spring months, throughout which main fieldwork should start. Their friends within the south, in the meantime, are busy harvesting crops earlier than the winter units in.

Nonetheless, their work now takes place because the Iran warfare creates severe provide constraints for important fertilizer merchandise — fueling large worth spikes and warnings of looming meals insecurity.

Round one-third of the worldwide seaborne fertilizer commerce passes via the Strait of Hormuz, in accordance with the UN.

The waterway, a vital delivery route that runs alongside Iran’s southern border, has been severely disrupted for the reason that begin of the warfare, with visitors successfully coming to a halt and a number of other ships being hit by projectiles in or close to the waterway.

For the reason that U.S. and Israel launched strikes on Iran on Feb. 28, the worth of fertilizer — a lot of which is produced within the Center East — has skyrocketed.

Fertilizer futures contracts are much less liquid than different commodities, making costs extra opaque. However analysts working within the sector advised CNBC that that they had seen the price of FOB granular urea in Egypt — a bellwether of nitrogen fertilizers — soar to round $700 per metric ton, up from $400 to $490 earlier than the warfare started.

In a Monday notice, Oxford Economics’ Alpine Macro mentioned urea and ammonia costs had surged by round 50% and 20%, respectively, for the reason that warfare started. Different fertilizers, like potash and sulfur, have additionally risen in worth.

The Center East is a very massive exporter of urea and nitrogen merchandise, in accordance with Chris Lawson, VP of market intelligence and costs at CRU.

“With the Strait of Hormuz primarily minimize off, there is a large chunk of world commerce that is not in a position to transfer proper now,” Lawson mentioned. “We estimate round 30% of exportable suppliers aren’t actually accessible to the market proper now, that’s Saudi Arabia, Qatar and Bahrain, however that additionally contains Iran.”

Iran, Lawson mentioned, is a crucial producer of nitrogen-based fertilizers and one of many largest exporters globally.

“There’s a variety of traded provide that’s in danger — 30% of world urea commerce comes out of Iran and the Hormuz-constrained nations,” he advised CNBC.

“It is a lengthy provide chain — if farmers aren’t in a position to get the urea that they want, crop yields will inevitably go decrease. Nitrogen is the primary nutrient {that a} crop must develop, [and] there will likely be inventories that may be drawn down, so that you’re probably not going to see an affect on crop yields and a lack of crop manufacturing till later within the yr.”

“You’ll be able to skip a season of potash, you may skip a season of phosphates, however you may’t skip a season of nitrogen,” Heyl mentioned.

With farmers within the northern hemisphere attributable to start fertilizing their fields, the availability constraint has intersected with cyclical demand. Urea, one of many world’s most used fertilizers, is used within the progress of varied crops, together with maize, wheat, rapeseed and a few fruit and veggies.

“There is a direct correlation to your nitrogen utility and your agricultural yield ultimately,” Heyl mentioned. “That is why I am much more involved concerning the present disaster than I used to be when Russia-Ukraine occurred 4 years in the past.”

When Moscow launched its full-scale invasion of Ukraine in early 2022, the 2 nations had been main exporters of fertilizers, with Russia accounting for a big proportion of world potash manufacturing. Sanctions on Russian exports added stress to a market that was already experiencing shortages, pushing costs greater.

“This, to me, is beginning to really feel prefer it might be worse, as a result of it may actually have an effect on agricultural yields throughout a variety of geographies, and throughout the key crops corresponding to maize [and] different large ones,” Heyl added, noting that almost all fertilizer futures had seen double-digit worth progress within the weeks for the reason that warfare started.

Sarah Marlow, world head of fertiliser pricing at Argus, agreed that the unfolding disaster within the Center East would have a much bigger affect on the fertilizer commerce than the Russia-Ukraine warfare.

“Virtually 50% of all globally traded sulfur comes from that area. For urea, it is round a 3rd of all globally traded urea that comes from that area and for ammonia, it is near 25%,” Marlow advised CNBC on a video name.

“So, it is large. It’s totally important — and extra important in some methods than the affect of Ukraine as a result of it’s affecting a number of producers.”

“You are not simply speaking about one or two,” she added, noting that exports from Saudi Arabia, Kuwait, Qatar, Iran and the UAE had been all being affected.

“The sulfur market was already structurally tight earlier than this started and we would already seen a peak in worth in January,” Marlow mentioned. “We have now seen extra manufacturing go offline and exports unable to get out and to depart the area, so there’s much more of a scarcity and we may see additional worth spikes consequently.”

Fertilizer manufacturing can be taking successful attributable to an absence of storage choices for merchandise that can’t be shipped and a shutdown of some vitality amenities within the Center East.

Earlier this month, QatarEnergy introduced it will cease downstream manufacturing of urea following its resolution to carry liquefied pure fuel manufacturing to a halt.

In the meantime, China — one other massive exporter of fertilizers — has put restrictions on exports to guard its home market from shortages, information company Reuters reported final week.

Ninety One’s Heyl mentioned that markets had entered 2026 with pretty excessive shares of primary meals commodities that had been reliant on fertilizer deliveries, that means there have been “buffer shares” that may assist offset some shortages of corn, wheat, soybeans and rice.

“If agricultural yields had been [hypothetically] impacted by 5% this yr, I do not assume we’ll be hunger, however it will actually trigger meals inflation,” he advised CNBC, noting that emerging-market nations had been extra more likely to really feel the brunt of the affect.

“Sadly, the poorer nations on this planet are very often extra uncovered to those crises,” Heyl mentioned. “I believe a few of the African nations that import a variety of grains, as an example, are going to be impacted.”

India, which imports nitrogen fertilizers in addition to pure fuel to provide them domestically, additionally faces excessive publicity to the shortages, Heyl added.

“I am extra involved for [a country] like India, for areas like East Africa, that are going to be extra susceptible,” he mentioned. “Rising markets east of Suez and the worldwide south are very often the kind of final to have the ability to afford [inflated prices].”

However he famous that the U.S. was not utterly insulated from the implications of a fertilizer worth shock, noting that whereas America produces a variety of its personal nitrogen fertilizer, the nation “has not acquired self-sufficiency.”

In accordance with the U.S. Fertilizer Institute, round a 3rd of nitrogen, phosphate and potash fertilizers utilized in the US are imported.

“It should be inflationary for the farmer,” Heyl mentioned of rising fertilizer costs trickling via to the US. “Are there going to make certain areas that may’t get their hand on the fertilizer or must ration?”

A complete of 54 agricultural teams not too long ago wrote to U.S. President Donald Trump to name for “much-needed market reduction for America’s farmers” amid surging gas and fertilizer costs.

“As planting season started in earnest throughout a lot of the U.S., the closure of the Strait of Hormuz despatched gas and fertilizer costs skyrocketing,” they mentioned. “Maritime freight disruptions from the continuing battle in Iran pose important penalties to meals safety right here at residence and around the globe.”