A farmer is doing math this spring that he didn’t anticipate doing somewhere in the flat, verdant stretches of Iowa. The soil is prepared, the equipment is greased, and the seed has been ordered. But the fertilizer invoice on his kitchen table reads differently than it did a month ago, and the difference is not small. In just one month, urea, the white-prilled nitrogen source that subtly feeds the majority of the world’s corn, has increased by 34% to a price of about $838 per ton. Even though it sounds abstract, that number is the start of a chain that eventually ends at the bread aisle.
It’s hard not to notice how rarely fertilizer makes the front page. The majority of people have never given urea any thought, and there is no compelling reason to do so. Yet roughly half the protein in the global food supply is grown using synthetic nitrogen, and urea is the workhorse of that system. When its price moves this sharply, something is usually wrong somewhere upstream. This time, it’s the Strait of Hormuz, where almost 40% of global seaborne urea exports have been cut off due to a de facto blockade. Granular urea is trading above $700 per metric tonne globally, up roughly 50% in five weeks. Generally speaking, markets don’t move very quickly unless they are afraid.
There’s a sense, talking to people in the trade, that this feels different from the 2022 spike. The panic was evident and loud during that one, which followed the invasion of Ukraine. This one is quieter, more structural. The spot market is thin and erratic because about 95% of legacy producer supply is locked into long-term contracts. Anhydrous ammonia has increased by 18%. Both UAN28 and UAN32 have increased by 21%. The slower-moving relative of fertilizer, potash, has also made an appearance. The cost of urea has increased by 48% since last spring. By themselves, none of these figures are particularly striking. When combined, they tell a tale.
Farming operates on margins so thin that they occasionally vanish, which is why the story is important. Approximately 65% of American farmers, according to a survey circulating this month, pre-purchased their fertilizer—the agricultural equivalent of purchasing winter coats in August. Now, the remaining 35% are writing checks that they did not budget for. Some will plant more soybeans, which require less nitrogen, and less corn. Some will hope for favorable weather and cut back on application rates. Both choices ripple outward in ways consumers usually don’t see until the receipts get longer at the grocery store.
It’s possible that the impact on your monthly grocery bill will be modest at first. Food prices respond to fertilizer with a lag, sometimes six months, sometimes longer, and retailers absorb what they can before passing costs through. However, the most exposed categories are well-known ones. Everything corn-fed, including bread, pasta, and breakfast cereal. especially beef. Because their feed conversion cycles are brief, chicken and eggs are nearer the front of the line. It wouldn’t be surprising if cereal aisle prices increased by 5% by late summer. If the Hormuz situation drags on, a larger one wouldn’t be either.
The thing that strikes me as I watch this develop is how interconnected everything has become without anyone really planning it that way. A farmer in Nebraska chooses to plant fewer acres of corn, a shipping lane half a world away tightens for reasons unrelated to food, and six months later a parent in Phoenix discovers the cereal box at Target costs an extra dollar. No one in that chain is acting irrationally. All of them are merely reacting to the price that is displayed to them.
It’s still unclear if this turns into a real crisis or just a temporary squeeze. Once logistics become easier and producers discover new routes, fertilizer markets tend to resolve themselves. However, there is currently very little leeway in the system. The silos outside the Midwest’s grain elevators are filling on time. The trucks are in motion. The crops will be planted. What they cost to grow, and what we’ll pay to eat them, is the question nobody can quite answer yet.
