Iran Situation | Goldman Sachs: Fertilizer Supply Shortage May Push Up Grain Prices

The Iran war has nearly closed the key shipping route of the Strait of Hormuz. A Goldman Sachs report states that nitrogen fertilizer supplies passing through the Strait have been disrupted, which could lead to a decline in global grain production, alter planting decisions, and potentially drive up grain prices.

According to the Fertilizer Institute, in the United States, some years see farmers importing urea fertilizer accounting for as much as 50% of their needs. Since supply remains about 25% below normal levels, spring planting may face challenges.

Goldman Sachs reports that fertilizer shortages could cause delays or reductions in nitrogen fertilizer application, leading to lower grain yields and prompting farmers to switch to crops like soybeans that require less fertilizer.

The report notes that since the conflict erupted, nitrogen fertilizer prices—accounting for about 20% of grain production costs—have risen 40%. One-quarter of global nitrogen fertilizer trade and about 20% of liquefied natural gas (LNG) transportation (which is critical for fertilizer production) pass through the Strait of Hormuz. Since the Iran war began, the strait has effectively been blocked. Disruptions could tighten fertilizer supplies in other regions and increase production costs.

The report suggests that fertilizer capacity outside the Middle East appears limited. Due to attacks on facilities and export restrictions, Russia’s output has been suppressed, typically accounting for around 15% of global nitrogen fertilizer exports. Additionally, China is likely to extend fertilizer export restrictions beyond August.

Goldman Sachs states that although U.S. farmers, who have pre-purchased ahead of the planting season, are currently relatively unaffected, supply disruptions in Europe, Australia, and the Southern Hemisphere could boost demand for U.S. grain exports and push up U.S. grain prices.