The conversation grows louder by the day as disruption at the Hormuz chokepoint hits the global nitrogen fertilizer market and, in turn, is set to impact upcoming corn and grain harvests in some key growing regions.
Goldman commodity analysts Lina Thomas and Daan Struyven penned a note on Tuesday warning clients that chokepoint risks in the Strait of Hormuz may affect global agricultural prices.
"The Strait of Hormuz is a critical route in the global nitrogen fertilizer market, which accounts for 60% of global fertilizer use and is especially important for crops like corn and other grains," Thomas and Struyven wrote in the note.
They warned that Hormuz disruptions not only constrain global fertilizer availability, but also that, with seaborne LNG flows from the region limited, any ability to boost fertilizer production elsewhere would be impacted.
"Given fertilizer accounts for ~20% of grain costs, the largest potential boost to grain prices is more likely to come from reduced grain supply. Fertilizer disruptions may reduce grain production both through yield losses from delayed or sub-optimal nitrogen application and potential acreage shifts toward less fertilizer-intensive crops," the analysts said.
They noted that the US is viewed as "currently relatively insulated because the conflict began just ahead of the planting season," adding that the most exposed areas include Europe, Australia, and the Southern Hemisphere, where crop calendars are later.
Even though US farmers may be relatively insulated, that does not mean US crop prices will remain low, as analysts expect global crop prices to rise.
Also on Tuesday, Russia suspended ammonium nitrate exports from March 21 through April 21 to secure domestic fertilizer supplies during the spring planting season. The report was released by Russia's state-run news agency TASS, citing the Agriculture Ministry.
Last week, former central bank adviser Alexandra Prokopenko put a timeline on when the food price shock could appear in global markets, saying she believes it could emerge in six to nine months.
Latest on fertilizer and food supply chain amid Hormuz chokepoint:
Bloomberg macro strategist Simon White recently noted that the energy and fertilizer supply shock is "troublesome for second-round inflationary effects."
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