Fertilizer costs surge amid Iran warfare, sparking meals safety 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 critical provide constraints for important fertilizer merchandise — fueling huge worth spikes and warnings of looming meals insecurity.

Round one-third of the worldwide seaborne fertilizer commerce passes by the Strait of Hormuz, in response to the UN.

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

Because the U.S. and Israel launched strikes on Iran on Feb. 28, the value 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 instructed 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 observe, Oxford Economics’ Alpine Macro mentioned urea and ammonia costs had surged by round 50% and 20%, respectively, because the 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 response to Chris Lawson, VP of market intelligence and costs at CRU.

“With the Strait of Hormuz basically lower off, there is a massive chunk of world commerce that is not capable of transfer proper now,” Lawson mentioned. “We estimate round 30% of exportable suppliers should not actually out there to the market proper now, that’s Saudi Arabia, Qatar and Bahrain, however that additionally consists of Iran.”

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

“There’s loads of traded provide that’s in danger — 30% of world urea commerce comes out of Iran and the Hormuz-constrained international locations,” he instructed CNBC.

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

Dawid Heyl, a co-portfolio supervisor for the World Pure Sources technique at Ninety One, instructed CNBC that nitrogen fertilizers like urea had been on the forefront of the Center East disaster as a result of — not like different fertilizer teams like potash and phosphates — nitrogen is “the one ingredient that you might want to get to the plant each single yr.”

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

With farmers within the northern hemisphere attributable to start fertilizing their fields, the provision constraint has intersected with cyclical demand. Urea, one of many world’s most used fertilizers, is used within the development of assorted 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 in the long run,” 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 international locations had been main exporters of fertilizers, with Russia accounting for a major 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 could possibly be worse, as a result of it may actually have an effect on agricultural yields throughout loads of geographies, and throughout the foremost crops equivalent to maize [and] different massive ones,” Heyl added, noting that the majority fertilizer futures had seen double-digit worth development within the weeks because the warfare started.

Sarah Marlow, world head of fertiliser pricing at Argus, agreed that the unfolding disaster within the Center East would have an even bigger influence 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 instructed CNBC on a video name.

“So, it is large. It’s totally important — and extra important in some methods than the influence 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 also be taking successful attributable to a scarcity of storage choices for merchandise that can not be shipped and a shutdown of some power amenities within the Center East.

Earlier this month, QatarEnergy introduced it could cease downstream manufacturing of urea following its resolution to deliver 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 fundamental 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 suppose we’ll be taking a look at hunger, however it could definitely trigger meals inflation,” he instructed CNBC, noting that emerging-market international locations had been extra more likely to really feel the brunt of the influence.

“Sadly, the poorer international locations on the earth are very often extra uncovered to those crises,” Heyl mentioned. “I believe among the African nations that import loads of grains, for example, are going to be impacted.”

India, which imports nitrogen fertilizers in addition to pure fuel to supply 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 weak,” he mentioned. “Rising markets east of Suez and the worldwide south are very often the type of final to have the ability to afford [inflated prices].”

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

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

“It is going to be inflationary for the farmer,” Heyl mentioned of rising fertilizer costs trickling by 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 aid 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 house and all over the world.”