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It was four years ago when Russia’s invasion of Ukraine triggered volatility and uncertainty in agricultural markets. This year, it’s the United States’ and Israel’s attack on Iran. The Middle East is a major supplier of energy and fertilizer. Moreover, the Strait of Hormuz between the Persian Gulf and Gulf of Oman is a critical shipping corridor for these commodities. Progressive Farmer’s Russ Quinn wrote, “The Strait of Hormuz moves about 20 million barrels of crude oil and other petroleum products each day, which is about 20% of global demand,” and “about a quarter of the globally traded nitrogen market moves through the waterway.” The attack has sent oil and fertilizer prices spiking upwards. Markets are concerned that oil and fertilizer will not be able to get out of the region causing supply shortages. As of this writing, the Strait of Hormuz remains closed. On Monday, the futures price for U.S. and Brent crude oil both rocketed past $100/barrel, up from the mid-$60s prior to the conflict. AOL said the average price of diesel jumped $0.41 last week to $4.16 per gallon — its highest level since 2023. Josh Linville, vice president of fertilizer for StoneX, reported urea prices at New Orleans are up $132/metric ton, or 30%. The Lincoln Journal Star reported urea prices rose from $457/ton to $574. Agricultural producers, already concerned about rising costs and profitability, now face even greater challenges. And the timing couldn’t have been worse with spring planting right around the corner. Higher fuel and fertilizer costs will make break-evens more difficult. Kansas State University agricultural economist Greg Ibendahl estimates that oil prices at $95/barrel will raise the average Kansas grain farm’s costs between $25,000-$30,000. And the longer the conflict lasts, the greater the risk of supply snafus and price spikes. Corn and soybean prices have also risen to a degree as a result of these events, which might be some consolation. Nevertheless, a tough year just got a lot tougher. |
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Figure 1. Brent Crude Oil Price |
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Source: Axios Visuals using data from Financial Modeling Prep |
