Hormuz-driven fertilizer shortage could raise grain prices, Goldman Sachs says
Disruptions to nitrogen fertilizer supply through the Strait of Hormuz could reduce global grain yields and shift planting decisions, potentially lifting grain prices, Goldman Sachs said in a report on Tuesday.
Fertilizer shortages may lead to lower grain output through delayed or suboptimal nitrogen application and encourage farmers to plant less fertilizer-intensive crops such as soybeans, the report noted.
In the US, where farmers import up to 50% of urea fertilizer in some years, spring planting could face challenges as supplies remain around 25% below typical levels, according to The Fertilizer Institute.
Nitrogen fertilizer, which accounts for roughly 20% of grain production costs, has seen prices rise 40% since the onset of the conflict, Goldman said. A quarter of global nitrogen trade and about 20% of LNG shipments – key for nitrogen production – transit the Strait of Hormuz, which has been effectively blocked since the war in Iran started.
Supply disruptions could tighten availability and increase production costs elsewhere, the bank warned.
"Spare fertilizer production capacity outside the Middle East appears limited," Goldman added, citing production constraints in Russia, which typically accounts for around 15% of global nitrogen fertilizer exports, due to facility attacks and export limits, as well as China's likely extension of fertilizer export restrictions beyond August.
While US farmers remain relatively insulated for now due to advanced procurement ahead of planting season, disruptions in Europe, Australia and the Southern Hemisphere could bolster demand for US grain exports and raise US grain prices, the bank said.
However, delays to March fertilizer shipments might affect April availability, compounded by the lack of US strategic reserves or quick domestic production scalability.
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