Key Shipping Routes Disrupted, Fertilizer Supply Pressured, Global Food Prices Face Upward Pressure

[Global Times Financial Report] According to Hong Kong Wend Communications, recent commercial shipping activity through the Strait of Hormuz has come to a halt. As one of the world’s three major routes for fertilizer trade, this disruption in the supply chain is raising strong concerns about global food prices. While the global market previously focused on energy supply risks, analysts point out that fertilizer shortages could directly increase agricultural production costs and trigger long-term economic ripple effects.

Stephanie Roth, Chief Economist at Wolfe Research, stated in a recent report that besides energy, another less-acknowledged but potentially high-risk area is food prices. Fertilizer shortages will directly drive up agricultural production costs. She estimates that this supply chain disruption could raise “home food” inflation by about 2 percentage points and add an extra 0.15 percentage points above the overall U.S. inflation rate.

Data shows that over one-third of global fertilizer trade is transported via the Strait of Hormuz, which is considered a critical artery of the agricultural supply chain. The timing of the current transportation disruption is particularly critical, as farmers in the Northern Hemisphere are preparing for spring planting, requiring fertilizer early in the crop growth cycle. Roth warned that if fertilizer supplies remain tight, farmers may reduce application rates, leading to lower yields of crops such as corn, soybeans, wheat, and rice, and significantly increasing agricultural costs.

Market data already indicates price volatility. According to the U.S. Fertilizer Association, during the two weeks ending February 27 and March 6, the price of imported urea fertilizer in the U.S. surged by 30% per short ton. Urea, a widely used nitrogen-based fertilizer to boost crop yields, is also one of the most transported varieties in the region. Veronica Nigh, Chief Economist at the U.S. Fertilizer Association, said that if trade disruptions persist, fertilizer prices will eventually pass through to consumers, raising food costs, with a global impact.

From a global perspective, this chain reaction is widespread. Asia and Africa are especially dependent on Gulf region fertilizer exports, with countries like India heavily relying on supplies from the area. Several African economies also depend on importing related raw materials. Although the U.S. imports about 20% of its fertilizer needs and has a relatively diversified nitrogen fertilizer supply, it still cannot fully avoid the pressure of rising global prices. In capital markets, despite the potential for reduced crop yields and increased household expenses due to transportation disruptions, fertilizer producers may benefit. For example, CF Industries’ stock recently hit a record high. (Wen Xin)