Middle East blockage impacts global fertilizer supplies

WASHINGTON — Military action in the Middle East has disrupted critical shipments of fertilizer and oil as farmers head toward planting.

At issue is disruptions in shipping through the Strait of Hormuz, located adjacent to Iran at the southern end of the Persian Gulf where 20% of the world’s oil supply, 49% of global urea exports and about 30% of the global ammonia exports traverse.

International tanker traffic in the strait’s chokepoint have been attacked by Iran.

“Our farmers across the country are heading into spring planting, and they’re facing one of the toughest economic environments that we’ve seen in decades. We’re experiencing a generational decline in farm income, driven by out of control inflation and declining crop prices,” Zippy Duvall, American Farm Bureau Federal president, said in a Zoom meeting with the media.

“Ensuring that we have reliable and affordable access to fertilizer is critical to protecting America’s food supply.”

—  Zippy Duvall, president, American Farm Bureau Federation

“Now, we’re seeing additional pressures from disruptions in the global fertilizer supply routes that flow through the Strait of Hormuz.

“Fertilizer is not an option to farmers. It’s a critical input that determines the crop yield and, ultimately, the food supply for the American people.”

Duvall said he had been told that many farmers who didn’t pre-order and pay for their fertilizer then, may not even be able to obtain fertilizer they are going to need for spring planting or during the growing season.

“It’s not just a farm issue. It’s a food security issue and an economic issue for the entire country,” he said.

“When farmers face supply shortages or major price increases, those impacts ripple through the entire food chain. Higher expenses can ripple through to prices for our families across America. That’s why maintaining stable fertilizer supply chain is essential to not just farmers, but everyone that depends on the American agriculture.”

Act Responsibly

Duvall asked input companies providing farmers with fertilizer “to act responsible” through the supply chain.

“Farmers understand the global markets can be volatile, but they should not be taken advantage of during this time of geopolitical uncertainty,” he said.

“We urge fertilizer companies, distributors and suppliers to avoid price gouging or optimizing their pricing that would further strain our farmers who are already under tremendous financial pressure.

“Farmers are preparing right now to put a crop in the ground that will feed and fuel our nation. It really is a national security issue. Ensuring that we have reliable and affordable access to fertilizer is critical to protecting America’s food supply.”

Critical Timing

Faith Parum, AFBF economist, said the timing of the blockade comes at a critical time for U.S. farmers.

“For example, 50% of fertilizer applications for corn is done in the spring, 28% for cotton and 42% for spring wheat, and then there’s that after-planting application. So, this will continue to have ripple effects through the ag economy as we see farmers struggling to source fertilizer and that will have dire impacts,” Parum said.

Costs

Harry Ott, South Carolina Farm Bureau president and cotton, corn and peanut farmer, provided his firsthand experiences.

“I called my fertilizer distributor to get a price and some fertilizer delivered, and he said, ‘I’m sorry, we will not price or deliver fertilizer until we see how this shakes out.’ That meant that I was already being charged $150 to $200 a ton more for urea fertilizer that was already in his warehouse. That’s part of the issue that a lot of farmers are trying to grapple with,” Ott said.

“We understand that the replacement cost to refill that warehouse is going to be higher because of the supply and demand. But we really don’t understand why we are being charged a $150 to $200 premium for what they already had purchased and in the warehouse.

“On top of that, 32% liquid nitrogen that we need is up $50 to $70 a ton higher already, even when they had their tanks already full.

“Suppliers are telling me they have enough in the warehouse for about 50% of the crop. What they don’t know is how much is at the entry ports where the fertilizer is brought in and stored before it’s delivered to distributors.”

The dilemma is farmers are paying more for pre-plant fertilizer, but are uncertain what the sidedress costs will be.

“We really won’t have any choice but to pay whatever they charge us, because we’ll have to finish the crop out, if the fertilizer is available,” Ott said.

John Newton, AFBF vice president of public policy and economic analysis, said a North Dakota farmer said he had booked about 60% of their fertilizer. He then went in and booked the remaining fertilizer to find the cost was about $200 a ton higher, which increased their fertilizer bill by nearly $20,000.

“So, this is real money. These are real price increases that have real effects on farmers and our food security,” Newton said.

Higher Diesel Costs

Shipping costs are also rising due the increased price of diesel fuel.

“Truckers are already paying $5 a gallon for fuel (as of March 9) where eight days ago, they were paying $3.60. That’s another added, because they’re not going to eat that cost. They’re simply going to charge me, the farmer, more money for that freight by putting a surcharge for fuel,” Ott said.

“On top of that, we have a shortage of sulfur fertilizer, and I’m not sure where that shortage came from. I’ve talked with multiple fertilizer dealers, and nobody really understands why we are having such a hard time getting sulfur.

“What we are asking for is simply some fairness in the system. If you’ve already purchased it, it’s in your warehouse, we as farmers would ask these fertilizers distributors, don’t make an additional profit on us during the really hard times.”

Food Price Implications

“Fertilizer is designed to be applied in a very particular point in time for that seed that’s going into the ground and with the Strait of Hormuz closed and fertilizer not being able to move through the strait, that creates significant shortages,” Newton said.

“Another concern would be, if we do not receive enough fertilizer to put on two months from now, that’s going to have severe implications on our productivity, which will, in turn, have dramatic implications on food prices.

“I think back to Russia’s invasion of Ukraine, food price inflation shot up over 10%, for several months in a row. Food and price inflation reached a 40-year high.”