The ongoing war in Iran is increasing more than the cost of oil. With key crop fertilizers also in the spotlight, US food prices could follow.
About one-third of the world’s fertilizer inputs – the essentials that farmers rely on to grow crops that turn into daily food – pass through the Strait of Hormuz, the most important shipping channel along Iran’s southern coast.
About one-fifth of the world’s oil also travels through narrow waterways. Since the US-Israeli invasion of Iran began on Feb. 28, the strait is successfully closed.
At least three cargo ships have been directly attacked by Iranian forces, and there are growing fears that Iran has planted sea mines in the crisis.
Faced with imminent danger, shipping companies and oil tanker owners have chosen not to go through the route, and marine tracking systems show hundreds of tankers sitting idle just outside the waterway, seemingly out of place.
Oil prices have risen as a result, with US crude reaching $99 a barrel on Friday evening, up nearly 50 percent since the war began. The longer the conflict continues, the greater the risk of disruption spreading beyond energy markets.
“A less well-known risk is the threat of potential conflict in the global food supply chain, which depends on exports from the region,” wrote Joe Brusuelas, chief economist at RSM, in a recent client note.
The Middle East plays a major role in fertilizer production, mainly because its natural gas reserves are the main input used to produce ammonia, the key to making nitrogen fertilizers like urea.
Countries facing disruption in the region due to war – including Egypt, Iran, Qatar, Saudi Arabia and the United Arab Emirates – account for about 49% of global urea exports, and about 30% of ammonia exports, according to the American Farm Bureau Federation.
“Fertilizer markets are globally integrated, so supply disruptions in one area can affect prices and availability elsewhere,” wrote Faith Parum, a Farm Bureau economist.
That means any increase in costs or tightening of supplies overseas could quickly ripple through the global agricultural supply chain and drive up food costs.
For American farmers, the uncertainty has hit home.
John Boyd Jr., a fourth-generation farmer in Virginia who grows soybeans, corn and wheat, said his fertilizer supplier recently warned him that shipments may not arrive as expected.
“The dealers are telling me we can’t get the fertilizer,” Boyd told NBC News in an interview this week. “Because of the war and the bombing in that area, the fertilizer does not move.”
Fertilizer is important for food production, he said, and must be applied before crops are planted.
“If I don’t apply fertilizer, that means I won’t have a harvest to grow my crop,” explained Boyd.
Going forward, he expects prices to rise as supplies tighten further.
Since March. 10, ammonia prices in the Middle East had increased by 92% compared to last year, while urea prices had increased by 70% during the same period, Brusuelas pointed out in his note.
In the US, ammonia prices are currently 41% higher than last March, while urea prices are up 21%.
Simply put: “Higher fertilizer costs will lead to higher prices in American supermarkets,” he wrote.
Already, food prices have been rising. According to the latest consumer inflation data released earlier this week, grocery prices rose 0.4% from January to February and are now up 2.4% from a year ago. Food costs rose 0.3% over the same period, and are up 3.9% from last year.
Now, as the growing season continues, any interruption in fertilizer supply could put more pressure on food prices in the coming months.
Time is of the essence in US agriculture. This is where farmers buy fertilizers, prepare fields and apply the nutrients needed to grow crops such as corn and wheat.
“As spring planting begins in the US, it is important to protect the transit, and the necessary accident protection insurance, for ships carrying fertilizers through the Strait of Hormuz,” Parum wrote.
“If farmers can’t get leftovers in time, we could see a reduction or shift in planted acres and lower yields, affecting our country’s food security and the availability of essential commodities.”
On Friday, Agriculture Secretary Brooke Rollins said the Trump administration is “very close to having an announcement on some solutions” aimed at keeping fertilizer costs down for farmers. But he did not give more details.
Rollins said the majority of farmers have purchased fertilizer at planting time, but admitted that about 25% have not, making them more vulnerable to price increases.
“Obviously, events around the world have an impact on our farmers,” he said at a White House event.
But it’s not just fertilizer. Diesel prices are also rising, which powers tractors, irrigation systems and fertilizer spreaders.
Boyd said those high fuel costs are starting to put pressure on his operations, in addition to fear of fertilizer.
“I have a tractor that needs 100 liters of diesel to fill it, and it costs me $469 for a tank of diesel alone,” he said. “That doesn’t last long.”
