Christine McKee is troubled by the surging prices of fertilizer essential for running her farm in southern Alberta. The average price of urea, a commonly used fertilizer, has sharply risen following the military actions led by the U.S. and Israel against Iran, impacting the global supply chain.
McKee, residing near Lethbridge, Alberta, expressed concerns about the diminishing profitability if fertilizer costs continue to rise while commodity prices remain stagnant. Although her family has secured enough chemicals for the upcoming spring planting season, she is apprehensive about future needs for the fall season.
The escalation in fertilizer prices has not yet directly impacted food prices like the immediate effect seen on gas prices due to disruptions in the oil supply. However, experts warn that if the conflict and its repercussions persist, the effects might be felt in the months ahead.
Josh Linville, an analyst at financial services firm StoneX, highlighted that a significant portion of global urea fertilizer exports passes through the Strait of Hormuz, a key shipping route affected by the conflict. The threat posed by Iran’s military has halted shipping activities in the region, hindering the export of oil, liquefied natural gas, and fertilizer.
Despite Canada’s domestic fertilizer production, local buyers are still susceptible to fluctuating global commodity prices, akin to how international oil price spikes impact Canadian crude and gasoline prices.
Industry analysts anticipate a compounding impact on Canadian producers if the elevated prices of oil, natural gas, and nitrogen fertilizer persist. The rising fuel prices pose a substantial expense for farmers, affecting their operational costs significantly.
Leigh Anderson, a senior economist at Farm Credit Canada, noted that the global fertilizer supply was already strained even before the conflict in Iran, leading to sustained high prices. Benchmark prices for nitrogen fertilizer have surged by approximately 30 to 40 percent in the past week due to concerns over supply disruptions.
The fear of potential shortages looms as fertilizer plants face closures and the gas supply essential for production is at risk. If the disruption prolongs, there could be significant supply issues, especially if key fertilizer shipments to North America are delayed.
The impact of the price surges on nitrogen costs will vary across Canada, with Eastern regions likely feeling the effects more rapidly than Western areas. However, the prolonged conflict poses a significant threat to farmers, potentially leading to higher input costs throughout the growing season.
Aaron Stein from the Alberta Federation of Agriculture described the supply issue as a temporary disturbance that could escalate if shipping operations do not resume promptly. The increased input costs are expected to be passed down the supply chain, eventually impacting consumers.
While Canadians are currently experiencing immediate effects of the conflict at gas stations, the impact of increased fertilizer costs on consumers may not be immediately noticeable. Short-term grocery prices are shielded from abrupt spikes due to existing contracts, with minimal expected impact in the next few months.
Farmers markets are likely to be the first to witness price hikes, particularly for fresh produce directly sourced from farmers. Despite the challenges posed by geopolitical events, including China’s canola tariffs and U.S. potash levies, Canadian farmers are resilient and adaptable, positioning them to endure ongoing challenges and uncertainties.
McKee remains optimistic for a swift resolution to the conflict, emphasizing the need for political interests to be set aside in favor of reestablishing beneficial trading relationships worldwide.