Farmers Face Triple Shock as Fertilizer, Weather and Diesel Costs Mount

what happened

Barron's, citing a new S&P Global report released on Monday, says the world's farms face three pressures at once. The Strait of Hormuz remains mostly closed, cutting fertilizer shipments just as the Southern Hemisphere's planting season starts. Roughly half of global sulfur trade and about 29% of urea, the most widely used nitrogen fertilizer, pass through the strait.

The second pressure is weather. Forecasters say El Niño has already begun shifting temperatures and rainfall, which could bring drought to some regions and excess rain to others. In Australia, wheat output could fall to 22 million tons from an expected 28 million. The third pressure is diesel, which is in short supply because of the wars in Iran and Ukraine. Tractors and combines burn a lot of fuel, so higher diesel costs quickly feed into food prices. Expensive diesel may also push farmers to divert more cropland to biofuels, leaving less acreage for food.

why it matters

Fertilizer and fuel make up a large part of farm costs, so these pressures could reignite food inflation. According to the same source, U.S. food inflation rose 2.5% over the past year and could move above 3.5% in the coming year. Fertilizer producers such as CF Industries may benefit from the shortage, while food companies like Tyson Foods could face higher input costs.

market impact

Wheat and food prices: higher input costs and crop risk add upward pressure; CF Industries may gain, Tyson Foods faces cost pressure

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