By Gus Trompiz and Naveen Thukral
PARIS/SINGAPORE, April 27 (Reuters) - Farmers around the world are facing the second surge in fertiliser prices in four years due to the Iran war. But with grain prices too low to cushion the blow from the deeper supply crunch this time around, many are rethinking planting plans, putting global food production at risk.
The Middle East is a leading fertiliser production hub, and much of the global fertiliser trade typically passes through the Strait of Hormuz, which
has seen traffic brought to a standstill by the conflict.
Supplies of urea - a nitrogen-based fertiliser - from the world's largest production facility in Qatar have been halted, and flows of sulphur and ammonia, common inputs for a range of fertilisers, have also been curbed.
With a resolution of the conflict proving elusive, analysts, traders, fertiliser producers and agronomists are looking back at the last supply crisis, Russia's 2022 invasion of Ukraine, worried that this time things could get even worse.
"Back in 2022, a lot of the fertiliser was ultimately flowing through," said Shawn Arita of the Agricultural Risk Policy Center at North Dakota State University.
"It's a much steeper supply crunch that we're seeing now."
CASH-STRAPPED FARMERS GRAPPLE WITH PRICE SPIKE
As fertiliser prices have jumped since the onset of the war in late February, urea has seen the sharpest price spike, reflecting the loss of the roughly one-third of globally traded volumes typically exported from the Gulf.
Some are paying. India, the world's largest rice producer and second-biggest wheat grower, has booked record volumes of urea in a single import tender, paying nearly twice as much as it did just two months ago.
But such price levels are beyond the reach of many, analysts say.
In 2022, high global grain prices helped farmers offset the steep increase in input costs caused by the Ukraine war. But ample harvests of grains and oilseeds in recent years have restrained crop prices.
Chicago wheat prices are roughly half what they were four years ago, for example. Soybeans were nearly 50% higher than now.
As a result, many growers today lack the revenue to absorb ballooning fertiliser bills.
Nitrogen-based fertilisers such as urea must be applied each season for many crops and directly influence annual yields as well as quality parameters, including protein content in wheat.
Farmers can cut back on other core nutrients, such as phosphate and potash, without immediate yield losses.
Even that option may be tested, however, if phosphate markets see a prolonged squeeze, as Chinese export restrictions coincide with war-related disruptions to sulphur and ammonia feedstocks.
In the end, some growers may just "roll the dice" and reduce fertiliser applications, putting yields at risk, said Andy Jung of U.S. fertiliser group Mosaic.
At least 2 million metric tons of urea production - equivalent to some 3% of annual seaborne trade - have been lost since the conflict began, according to Sarah Marlow of commodity data provider Argus, as plants shut down in the Middle East as well as in India, Bangladesh and Russia.
Nearly 1 million tons already loaded on vessels, meanwhile, remain stuck in the Gulf.
Even if hostilities end soon and the Hormuz strait reopens, just clearing the queue will take weeks, said Mark Milam of commodity market intelligence firm ICIS.
And fertiliser availability will likely remain constrained for months due to damage to Gulf production facilities and competition for limited alternative supplies.
"It's going to take a while to get back to normal," said Stephen Nicholson, Rabobank's head of North American grains and oilseeds.
GLOBAL FOOD PRODUCTION AT RISK
Many farms still have fertilisers on hand, while record harvests last year have boosted global grain stocks. So the immediate impact of the current crisis on global food supplies may be limited.
Agricultural bodies, including the International Grains Council, are already cutting their forecasts for the next harvests, however. And the United Nations, which is trying to negotiate shipping access for fertiliser through the Gulf, has sounded the alarm over food security in developing nations.
In 2022, high fertiliser costs contributed to exacerbated hunger in poor, import-dependent countries, and analysts say regions like East Africa are again vulnerable.
Australia may offer an early indication of the impact on production of global staples.
In the bread-basket state of Western Australia, one industry group now expects the wheat planting area to drop by 14% as growers shift away from the fertiliser-intensive, low-margin grain.
Farmers still growing wheat may simply cut fertiliser application rates.
"If we see a drop-off in application in Australia and we start seeing expected yields come down, it could be quite an ominous sign for what's in store for everybody else," said Matthew Biggin, senior commodities analyst at BMI.
In Brazil, the world's biggest soybean exporter, analysts also expect farmers to use less fertiliser and potentially switch to cheaper, less effective products like ammonium sulphate.
Yields for Southeast Asian palm oil - the world's most produced edible oil, already facing tight supply - could also fall, while Amit Guha, an independent Kuala Lumpur-based agronomist, warned that nutrient shortfalls posed longer-term risks to younger trees.
In Europe, spring planting decisions are shifting against input-intensive corn in countries including France, while reduced top-up nitrogen applications may trim protein content in this summer's wheat harvest, analysts said.
The larger risk, however, will come during autumn planting, when cash-strapped European farmers could cut overall grain area.
"That's why we're starting to get a little worried about the 2027 harvest," said Benoit Fayaud of Expana.
(Reporting by Gus Trompiz in Paris, Naveen Thukral in Singapore, Ed White in Winnipeg, May Angel in London, Oliver Griffin in Sao Paulo and Mirac Dereli in Istanbul; Additional reporting by Sybille de la Hamaide and Tristan Veyet in Paris; Editing by Simon Webb and Joe Bavier)
