The ongoing conflict in Iran is escalating concerns over rising food prices, as disruptions in fertilizer supplies threaten agricultural stability in the United States. Since the onset of U.S. and Israeli military actions on February 28, 2024, the Strait of Hormuz has experienced significant turmoil. This critical shipping route, which facilitates the transit of approximately one-third of the world’s fertilizer ingredients, has seen cargo vessels attacked and shipping companies reluctant to navigate the area.
As a result, oil prices have surged, with U.S. crude reaching over $99 per barrel, marking a rise of around 50% since the conflict began. The longer the fighting continues, the greater the risk of widespread disruption to global food supply chains.
Fertilizer Supply Chain at Risk
The Middle East plays a vital role in fertilizer production, largely due to its abundant natural gas reserves, which are essential for producing ammonia—a key component in nitrogen fertilizers such as urea. Countries affected by the conflict, including Egypt, Iran, Qatar, Saudi Arabia, and the United Arab Emirates, collectively account for nearly 49% of global urea exports and about 30% of ammonia exports, according to the American Farm Bureau Federation.
Joe Brusuelas, chief economist at RSM, emphasized in a recent client note that disruptions in one region can have a cascading effect on fertilizer markets globally. This interconnectedness means that any increase in costs or supply shortages can quickly ripple through the agricultural supply chain, leading to higher food prices.
John Boyd Jr., a fourth-generation farmer from Virginia, has already felt the impact. He reported that his fertilizer supplier warned of potential shipment delays due to the ongoing conflict. “The dealers are telling me we can’t get the fertilizer,” Boyd explained. “Due to the war and the bombing through that area, the fertilizer isn’t moving.” He noted that fertilizer is crucial for crop yields and must be applied before planting.
Rising Costs and Impending Planting Season
As of March 10, 2024, ammonia prices in the Middle East have surged by 92% compared to the previous year, while urea prices have increased by 70%. In the United States, ammonia prices are currently 41% higher than last March, with urea prices up 21%. Brusuelas pointed out that higher fertilizer costs will inevitably lead to increased prices at U.S. supermarkets.
Grocery prices have already been on the rise, with recent consumer inflation data showing a 0.4% increase from January to February 2024, and a total increase of 2.4% compared to the previous year. The cost of dining out has also seen a 0.3% rise over the same period, reflecting a 3.9% increase year-on-year.
As the planting season approaches, any disruptions in fertilizer supplies could exert additional pressure on food prices in the coming months. This critical time coincides with when farmers in the U.S. purchase fertilizers, prepare fields, and apply nutrients necessary for crops such as corn and wheat.
Brooke Rollins, U.S. Secretary of Agriculture, indicated that the administration is close to announcing measures aimed at stabilizing fertilizer costs for farmers. She acknowledged that while most farmers have secured their fertilizer for the planting season, approximately 25% have not, leaving them vulnerable to price fluctuations. “Obviously, events around the world are impacting our farmers,” she stated during a recent White House event.
In addition to rising fertilizer costs, farmers are grappling with increased diesel prices, essential for operating tractors and irrigation systems. Boyd expressed concern over these escalating costs, stating, “I have a tractor that requires 100 gallons of diesel fuel to fill it up, and it costs me $469 just for a tank.”
As the conflict in Iran continues, the ramifications are likely to extend beyond energy markets, potentially reshaping food prices and agricultural practices around the globe. The agricultural sector’s ability to adapt will be critical in addressing these challenges and ensuring food security in the face of rising costs.
