The other commodity crisis

There’s been plenty of ink spilled about how the Iran war has triggered an oil crisis that could reignite inflation and spike prices at the pump. But there’s another, under the radar commodity that’s also facing a shortage due to the war in Iran: fertilizer.

“Oil above $70 is the headline, but the bigger, underpriced risk is nitrogen fertilizer, as a functional closure of the Strait of Hormuz threatens 25% to 35% of globally traded ammonia and urea,” wrote Jake Hanley, Chief Growth Officer and Director of Investments at Teucrium in a note last week. “Unlike oil, there is no strategic fertilizer reserve, new ammonia plants take years to build, and existing facilities are already running near capacity,” he added.

With the Strait of Hormuz closed, fertilizer prices are climbing to the highest they’ve been in years at the worst possible moment. Between February 27 and March 6 alone, the price per short ton of urea fertilizer imports in the US rose 30%, according to CNBC—just in time for the spring planting season here in the US.

US fertilizer companies surged today on the notion that they’ll be able to take market share while Middle Eastern producers are locked out of the market. On top of that, American fertilizer companies enjoy another advantage over their international counterparts: access to cheap US natural gas, a key input for fertilizer production, while LNG prices continue to rise around the globe.

CF Industries Holdings has risen 22.82% over the past week, reaching an all-time high on Monday, while Mosaic has rallied 19.27% in the last five days. Nutrien, a Canadian fertilizer producer, jumped 12.81% over the same period.

All roads lead back to stagflation

While fertilizer stocks are enjoying a boost, the supply shortage could be a major issue for the economy, and reignite inflation. Rising fertilizer costs for farmers could bump the price of food as crop yields decline—a dangerous one-two punch for global agriculture.

But when it comes to geopolitics, nobody has a crystal ball—all we can do is wait and see.—LB