War Sends Shockwaves Through Farm Inputs

This Week In Ag #156

If you prepaid for fertilizer and fuel last fall, and sold it back today, there’s a good chance you’d make more money from those transactions than you will farming this year. That mere notion speaks to how the recent military action in Iran has impacted an already fragile US farm economy.

The urea market is now reminiscent of 2022 – minus those record crop prices. About 40% of the world’s urea moves through the Strait of Hormuz. Shipments have been disrupted due to the war, causing chaos in the nitrogen market. The day after bombing began, urea shot up $100. And they’ve kept going up. Many retailers aren’t even giving out quotes for urea or anhydrous, and if they are, quotes are subject to change that day. There’s even talk of shortages.

Phosphorus, already teetering on record prices, is also on the rise. Look at the top five phosphorus exporting countries. China has restricted exports, Morocco is impacted from supply chain issues resulting from the Strait, Saudi Arabia is locked behind the Strait, Russia is dealing with logistical issues due its own war and USA is producing well below capacity.

Diesel fuel shot up over 22% on average last week. And with spring field work soon upon us, the timing couldn’t be worse. Soaring energy costs impact farmers in many ways. Red diesel is what fuels field equipment such as tractors and sprayers. Farmers will be burning through lots of it to plant, fertilize and protect their crops. Then there’s on-road diesel. This will dramatically impact freight charges for all the products farmers purchase, as well as shipping crops and livestock they sell.

Rallies were seen in commodity markets last week. Whether a reaction to crude oil prices, uncertainty from world events, weather worries in Brazil or traders entering the market, grains saw steep gains, led by soybeans and wheat. Even corn benefitted from the rally. But none of these gains thus far are nearly enough to compensate for soaring crop input prices. Cotton prices remained unphased, with prices stuck in the mid 60s.

When fertilizer prices spike, we often see a change in planting intentions. We’ll likely see drops in fertilizer-intensive crops like corn and cotton, while soybeans acres should rise.

How long will this military mission in Iran last? The Trump Administration has indicated 4-6 weeks, while others are projecting multiple months. Regardless, we’re now approaching go-time on the farm. And while most farmers turned back their clocks this weekend, they can’t turn back the fallout from these spikes in crop input costs.