The start of negotiations between both sides in the US-Iran conflict and the subsequent reopening of the Strait of Hormuz to shipping has been good news for energy users who have seen oil prices fall below $80.
While the vagaries of global oil prices matter to farmers, the real challenge from the conflict came with the surge in fertiliser prices. The closure of the key Gulf shipping route saw the almost a third of global urea supply cut off from international markets.
Within weeks of the start of the conflict, benchmark Middle East urea prices had more than doubled to $915 a tonne (€800/t).
Those prices, seen in late March and early April, had already started to turn lower in recent weeks. That drop has accelerated again in the past few days, pushing fertiliser prices below the level seen before the conflict began.
The Green Markets North America Fertiliser price index stood at 702.5 points on 19 June, the lowest level since mid-January (see figure 1).
The initial drop in urea prices appears to have little to do with the progress towards a ceasefire in May.
Instead, it is down to a mixture of supply and demand factors which developed during the month.
When the Strait of Hormuz was first closed, the run up in fertiliser prices was exacerbated by the announcement of export restrictions by Russia and a ban on exports of many fertiliser products by China – both major suppliers to the global market.
The Russian restrictions were short lived, while China started issuing export quotas for urea in late May.
The recent moves will have been particularly welcome for India, one of the world’s largest importers, which had been buying up supplies in North Africa during the conflict. If India can secure more supplies in its neighbourhood, then there will be less competition for European buyers in North Africa.
With the reopening of the Strait, and the passage of ships this week, there has been further easing of supply. Thailand’s ministry for commerce said that two ships loaded with fertiliser bound for the country successfully navigated the passage in recent days.
All this means that the price pressure for urea from the supply side has effectively evaporated in the last couple of weeks. The one cloud remaining on the supply side for fertilisers is the continued high cost of sulphur, which is used in the manufacture of phosphate fertilisers.
The majority of global sulphur production is concentrated in the Gulf region, so prices of that commodity remain high for now. But as shipping returns to pre-conflict levels there should be a reduction there too.
On the other side of the equation are the developments in fertiliser demand. Market analysts suggest that buyers, seeing the rapid drop in urea prices, are holding back from making large purchases in case there are further falls in fertiliser prices.
There has also been some demand destruction in recent months as buyers would not, or could not, pay the elevated prices. Maximo Torrero, chief economist at the United Nations Food and Agriculture Organisation (FAO), warned that farmers faced difficult choices when fertiliser prices were elevated.
He said they could reduce fertiliser use and accept lower yields, shift to alternative crops, or absorb the higher costs and risk financial ruin. He noted that many farmers in the northern hemisphere allocated land away from nitrogen-intensive crops, such as maize and wheat, to soybeans which can fix nitrogen in the soil.
He said that even with the recent drop in nitrogen fertiliser prices, the damage to future output is already done.
He warned that continuing production as usual despite rising costs is not financially viable for many farmers. The rise in fertiliser costs was not accompanied by a rise in crop prices, meaning that many producers will be pushed towards losses as margins are squeezed.
Torrero’s note about profitability points to a major difference between the current crisis and the one which was triggered when Russia invaded Ukraine. Back in 2022 the surge in input prices was accompanied by a rapid rise in crop prices, which allowed farmers to maintain margins generally. This time around, farmers faced rapidly rising input costs and static or falling crop prices.
For Irish farmers, the drop in nitrogen fertiliser prices is good news, even if it has come a little late for the main application period. Over the medium term, if Torrero is correct, then there may be a rise in wheat and maize prices later this year and into 2027, which will also be good news for the tillage sector.
CBAM
Fertiliser prices in Europe will still have the carbon border adjustment mechanism (CBAM) to deal with. Despite calls for the suspension of the measure, the EU has instead opted for a support package for farmers facing increased costs from price rises.
There are proposed legislative changes to CBAM which include an article, 27a, which would give the Commission power to temporarily remove specific goods from CBAM.
Those proposals, if they survive committee stage will most likely be voted on by the European Parliament in September.
However, even if they do pass into law, they will be unlikely to have any effect on the CBAM burden on imported fertiliser when the price of that product on global markets is falling.
The effect of CBAM can be seen in the recent move by the EU to remove the 5.5% import tariff on ammonia from the US as part of the EU-US trade agreement. That reduction in cost is more than offset by the approximately €170/t CBAM charge on US ammonia, meaning the product will be significantly more expensive than it was in 2025 when the tariff was in place, but before CBAM was introduced.
The rapid drop in nitrogen fertiliser prices seen in recent weeks is good news for Irish farmers, even if it has come a little late for the main application season. As supplies from the Gulf region start to return to normal – presuming no resumption of hostilities – the price of phosphate fertilisers should also start to turn lower.
The medium-term fallout from the crisis remains to be seen, as planting decisions made across the northern hemisphere in recent months will feed through to crop prices later this year and into 2027, which will inevitably move prices for animal feed.
In Europe, CBAM will continue to add a premium to prices, meaning nutrient costs will remain elevated over the long-term.
If agreement is reached for a mechanism to allow a suspension in times of rapid price increases there may be relief when the next fertiliser price crisis comes along.
However, with prices falling, the political pressure to agree to such a mechanism could be fairly low when the time comes to vote on it.
SHARING OPTIONS