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Fears of a global food crisis are on the rise as the virtual shutdown of the Strait of Hormuz halts the movement of fertilizer out of the Gulf just ahead of the Northern Hemisphere planting season.
“We shouldn’t underestimate what this potentially could mean for global food production,” Svein Tore Holsether, chief executive of Yara, Europe’s largest fertilizer group, said in a Financial Times article.
- “If you’re not getting [fertilizer] into the field of farmers, yields could go down up to 50 percent in the first harvest,” he said.
Around 35 percent of global urea moves through the strait, which links the Persian Gulf with the Gulf of Oman and the Arabian Sea. Iranian attacks on ships and infrastructure have effectively halted traffic through the waterway, which typically sees daily traffic equivalent to 20% of global oil and natural gas consumption. It also accounts for around 35% of global urea transport and a large share of other nutrients.
Oil and gas prices have soared, while fertilizer prices, particularly urea, have also climbed sharply. Analysts told the FT that the fertilizer shock is on track to be worse than the crunch that followed Russia’s 2022 invasion of Ukraine. “When prices spiked in 2022 it was extraordinary, but the market was able to adjust because Russian exports continued,” said Chris Lawson, head of fertilizers at CRU. The key contrast is that in 2022, Russian exports continued while the current situation represents a physical barrier.
Hopes dashed: Expectations for some relief had risen Wednesday, with oil futures stabilizing, after President Donald Trump said the U.S. Navy could escort oil tankers through the strait and announced plans to help provide insurance to carriers. Oil futures soared anew on Thursday as traffic remained halted and Iranian attacks continued.
- “Yesterday gave global urea markets hope that the Strait would reopen to vessel traffic and supply impacts would be limited,” said fertilizer analyst Josh Linville of StoneX, in a post on X. “That is now gone. Vessels refuse to sail. Production starting to slow. Urea prices are up once again with mid-$600 the new benchmark...for now.”
Soaring urea prices are seen as increasingly likely to shift some uncommitted U.S. acres from corn to soybeans as spring planting season approaches.
Brazil feels the squeeze: The Iran war is also seen putting a squeeze on Brazilian farmers, Reuters reported, with the Middle East a key destination for the country’s farm exports and an important provider of fertilizers.
Analysts say the disruption of ship traffic through the strait could spark grain contract cancellations, and fertilizer shortages in Brazil, which is highly dependent on imports. Bulk grain cargoes enter the Middle East through the Strait of Hormuz.
Oil’s renewed surge: West Texas Intermediate crude futures, the U.S. benchmark, ended with a gain of 8.5%, the largest one-day jump in nearly six year, while global benchmark Brent crude advanced 4.9% to $85.41 a barrel.
While Trump’s pledge for naval escorts had provided some short-lived relief, experts questioned how effective such maneuvers would be.
“These are cramped surroundings,” James Holmes, a professor of maritime strategy at the U.S. Naval War College, told the Wall Street Journal. He compared the strait to a funnel, noting that local topography, including a shipping channel that shrinks to less than 2 nautical miles wide at its narrowest, requires predictable routes. Iran can “just saturate that narrow passage with fire.”
Stocks sink: Another jump to the upside for crude put pressure on stocks. The Dow Jones Industrial Average was down more than 1,100 points at its session low before trimming losses to finish with a loss of 785 points, or 1.6%. The S&P 500 fell a modest 0.6%, while the Nasdaq gave up just 0.3%.
Fed-funds futures traders have scaled back bets on Federal Reserve interest rate cuts due to fears the war will lead to a resurgence in inflation.
Ethanol profits: Net returns for a representative Iowa plant in 2025 averaged $0.21 per gallon, well above the long-run average of $0.13 per gallon since 2007, according to a farmdoc paper by Scott Irwin, the Laurence J. Norton chair of agricultural marketing at the University of Illinois, published this week.
“On an annual basis, nominal profits of $23.2 million marked the sixth consecutive year in positive territory and the sixth year since 2007 with profits exceeding $20 million,” he wrote. “Given the headwinds facing the industry at the start of 2025 – including trade policy uncertainty and a soft corn ethanol price environment – this is a genuinely impressive result.”
Looking ahead, Irwin said the profitability outlook for the industry will continue to depend on the corn-to-ethanol price spread, the trajectory of RIN values under the U.S. Renewable Fuel Standard, and the pace of further adoption of efficiency-enhancing technologies such as corn-kernel-fiber conversion.
“An additional and potentially important new source of revenue not captured in our current model is the 45Z Clean Fuel Production Credit,” he said. “The changes to this tax credit in the Big Beautiful Bill passed last July are likely to meaningfully alter the economics of ethanol production going forward.”
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