- 15 hours ago
Category
🗞
NewsTranscript
00:00This is a story about the other shoe dropping.
00:03The war in Iran has sent the price of oil and natural gas soaring,
00:06putting pressure on just about everyone,
00:08from central banks trying to deal with inflation.
00:11The economics effect could be bigger, they could be smaller,
00:14they could be much smaller or much bigger.
00:15We just don't know.
00:17To people filling their tanks at the gas station.
00:19Before the gas prices went up, I could fill my car up for like $30, $35.
00:24Now it's costing me right at $60.
00:26But the Strait of Hormuz isn't just affecting energy prices,
00:30it's also hitting farmers who need fertilizer for the crops they're about to plant.
00:35What's happening to farmers right now is a double whammy
00:41at a time when they're very vulnerable.
00:43Our special contributor, Chrystia Freeland,
00:46was among those who spotted the fertilizer problem as soon as the war began.
00:50I am a farmer's daughter,
00:52and I'm also a former foreign minister and a former finance minister.
00:57And one of the first things I thought when this war started
01:01and when it was clear that Iran was going to be blocking the Strait of Hormuz
01:05was, oh no, what's going to happen to the farmers?
01:09Fertilizer accounts for about 25% of the total costs of farmers of row crops,
01:14such as corn and soybeans.
01:16And since the war with Iran began, prices for nitrogen-based fertilizer have risen dramatically.
01:22We have seen a major impact on global nitrogen and phosphate values.
01:26Josh Linville is vice president of fertilizer at financial services firm Stone X.
01:32Of course, as most farmers will tell you, those prices have skyrocketed,
01:35and it's based on the fear of the lack of supply that's out there.
01:38We have seen, because of the shutdown of the Persian Gulf,
01:41the global S&D for nitrogen and phosphate as well, which isn't getting as much traction,
01:45not as much attention, we are seeing both of those get extremely tight.
01:50So everybody is talking about the oil and the gas and everything else that flows through there.
01:54Few people know urea being the most commonly traded nitrogen product of the world,
01:58about a third of the world's product flows through that Strait of Hormuz.
02:02When you look at the top 10 list of global urea exporters,
02:06three of them sit behind the Strait of Hormuz.
02:08That's Iran, that's Qatar, and that's Saudi Arabia.
02:11Those three nations represent three of the 10 largest anhydrous exporting nations.
02:16And even on the phosphate side, not a lot of people understand this,
02:19Saudi Arabia is one of the world's top five exporting nations for phosphate exports around the world.
02:24And again, all of these products are stacked up and backed up,
02:27and production is suffering until the Strait of Hormuz is reopened to save traffic.
02:31Farmers are very affected by the price of fertilizer.
02:35Fertilizer. Fertilizer accounts for, you know, about 25% of the costs for a farmer.
02:41And this is happening just at seeding time as they're getting ready to plant their crops.
02:48And it's happening at a time when farmers have been really beaten up.
02:52You know, the trade wars have been really hard for farmers, for American farmers, I should say.
02:58COVID was really, really hard for farmers.
03:02And Russia's invasion of Ukraine and the economic impact was really hard for farmers.
03:08So they've been having a hard time.
03:11And then on top of that, you see the price of fuel, the price of fertilizer skyrocket
03:17at a time when you're just, you know, going into your shop, looking at your seed drill,
03:24checking that everything works, getting ready to get out in the fields.
03:27U.S. farmers' need for fertilizer is so great that they're allowed to import it even from Russia,
03:33the largest exporter of nitrogen fertilizers in the world.
03:36But they have nevertheless been hurt by geopolitical events thousands of miles away.
03:42So you've got to be able to move it in a cost-effective manner at scale.
03:48Tom Halverson is CEO of CoBank, which provides financial support to farms, cooperatives, and agribusinesses.
03:54At the same time, rural Americans in general, and farmers in particular,
03:59are not immune from macroeconomic conditions, including inflation, for example.
04:06They are incredibly exposed to trade, buying and selling internationally.
04:13Producers have been squeezed quite dramatically over the last, you know, 12, 18, 24 months
04:18by a combination of lower commodity prices for what they sell, on the one hand,
04:21and significantly higher prices for the inputs, you know, be it fertilizer, seeds, chemicals,
04:28and things of that nature.
04:30And therefore, economic conditions are tougher than they have been, you know,
04:35until you go back to the 2018-2019 period when we had our first trade conflict in general,
04:44but particularly the one we had with the Chinese.
04:46And when the costs go up for farmers, the price of food cannot be far behind,
04:51with all that means for inflation.
04:54Higher fuel prices automatically translate into higher food prices.
04:59Higher fertilizer prices automatically translate into higher food prices.
05:04And, you know, the thing that I think is especially challenging about that
05:10is the geopolitical and the political consequences.
05:15You know, a lesson that I think I really learned during COVID and during the inflationary aftermath of COVID
05:24was what a huge and unpredictable political impact the price of food can have.
05:34The people who are hurt the most are the most vulnerable.
05:37The people who are the most vulnerable in the world, and that is the global south,
05:42and the people who are the most vulnerable in our own countries.
05:46So, you know, that means in the United States,
05:50people for whom food is a really big part of their budget.
05:53Since the war between the U.S. and Iran began on February 28th,
05:57we've already seen the consequences start to reverberate around the world.
06:02Just a week into the war, the price of urea rose by 19 percent.
06:06And with each day, those consequences spread and grow.
06:11It's come in waves.
06:12And the way that we've looked at it from a supply standpoint,
06:14we woke up Saturday morning to the news that this attack had happened.
06:17From that point on, we knew vessel traffic was going to stop
06:20because you've got to wait until safe passage.
06:22The ship owners weren't going to put their crew and their vessel at harm's way.
06:25And so we knew that if this lasted several days,
06:28we were going to have a shipment problem.
06:30But we could solve that in relative short order if we kept it to, say, three to five days.
06:34After we moved past that period, now we started to wonder,
06:37okay, we're losing some of the most important shipment times of the entire year from this situation.
06:43And we had to start worrying about what's the impact on production
06:46because storage is finite in that part of the world.
06:49We finally started to see it come true.
06:51We started to see oil and gas production go down.
06:54We started to see nitrogen production go down
06:55because they had nowhere else to go with these tons
06:57until the vessel started to move again.
07:00Well, here we are in the third week.
07:02And unfortunately, this has broke out,
07:03and we're starting to see the tentacles of the story start reaching out to other parts of the world.
07:07And what I mean by that,
07:08it is no longer just a nitrogen phosphate Persian Gulf Strait of Hormuz story.
07:13Now it's moved to natural gas.
07:15A lot of the world's natural gas flows to the Strait of Hormuz.
07:18And why is that important?
07:20India, for example, is the world's second largest producer of urea.
07:24A lot of their gas input for their domestic nitrogen production facilities
07:27comes from the Middle East.
07:28Their production rates are falling drastically
07:31because they don't have the input to produce that finished good.
07:34In fact, you're hearing stories about, you know,
07:36cooking gas being hard to come by,
07:38and prices skyrocketing as they are.
07:40So you're seeing major global manufacturers starting to be impacted.
07:43Linville says that even if the war were to end immediately,
07:47there would be a delay in getting fertilizer to the people who need it,
07:50like U.S. farmers.
07:52And that delay comes at a critical moment.
07:55It's timing.
07:57Take the U.S. market, for example.
07:58Our single biggest month for urea imports is the month of April.
08:03And you might be thinking, well, that's okay.
08:05We're not in April yet, right?
08:06We're middle of March.
08:07We still got time.
08:08But vessels don't just show up overnight.
08:11If somebody snaps a finger, they get a wish, and everything is done,
08:15we can start loading vessels immediately.
08:17And the very first vessel is going to point to the U.S. market.
08:21It's going to take a couple days to fill that vessel
08:24and get it pushed back out to sea.
08:25And it's going to take about 30 days in total between loading and arriving to a U.S. shore.
08:30And as of today, middle of March, that means the first vessel does not arrive until the middle of April.
08:35And then you take it further.
08:36That's just on the U.S. shore.
08:37For most farmers, that doesn't help you.
08:39Now you need to move that product from that shore into the inland market where the farmer can get their
08:43hands on it.
08:44That's another two-, three-, four-week process, again, depending on where you are.
08:49So all of a sudden, we're talking we're in the middle of March.
08:52Those tons, if they were to ship today, don't arrive until the middle of May.
08:56And for most farmers out there, that's too late.
08:58Given the pressure on farmers from the war and its effects on fertilizer,
09:02the question remains how to respond and what comes next.
09:07If I'm a row crop farmer somewhere in the Midwest, pick a state, Iowa, Nebraska, Kansas, what are my options?
09:15Are there any ways for me to hedge at this point?
09:18There are NOLA urea, UAN, and DAP phosphate futures that the CME trades daily.
09:25That's a big part of what we do.
09:27But unfortunately, those paper products, it's not going to help solve the supply situation that we are in today.
09:32Unfortunately, where we are with so little time between today and planting and basically moving on from planting into spraying,
09:40we're out of time.
09:42With more time to plan, farmers might change the crops they plant, moving away from those, like corn, that need
09:48nitrogen-based fertilizer.
09:50But it's getting late in the season for that.
09:53They'll be getting scared.
09:55One of the things that is going to be particularly hard is the mix of costs of different fertilizers has
10:04an impact on what you should be seeding.
10:07And that, you know, this unexpected event makes that kind of planning for farmers really, really difficult.
10:15And, you know, we are at the end of March.
10:20That's not a really good time to change your plans for what you're going to seed.
10:24One solution might come from closer to home.
10:27Nitrogen-based fertilizers like urea are not the only options available.
10:32U.S. farmers also rely heavily on fertilizers like potash, much of which comes from Western Canada.
10:39Pam Schwan is the president of the Saskatchewan Mining Association.
10:43Well, potash is one of the main fertilizers that's used to help make crops healthy and grow larger yields.
10:50So as the world grows to 10 billion people by 2050, on less arable land, we need to be able
10:56to grow crops more effectively and more efficiently that have higher crop yields.
11:01So potash is one of those three ingredients, along with phosphorus and nitrogen, that make crop yields much improved.
11:09What is the role of potash in Canada's economy?
11:13It's very significant, particularly in Saskatchewan.
11:15100% of all the potash produced in Canada is produced in Saskatchewan.
11:19Very little is used in Canada and very little in Saskatchewan.
11:23So there's probably over 98% of what is produced in Canada and, again, all in Saskatchewan is exported to
11:30global markets.
11:30So of that, about 50% goes into the United States to help farmers there grow, you know, corn, soybean
11:37and oats.
11:38And the rest is exported out to countries like China, India, Indonesia and Brazil are probably the main customers.
11:47Fortunately for U.S. farmers and for Canada's miners, Canadian potash has been kept free from tariffs,
11:53something former Deputy Prime Minister Freeland considers wise for all concerned.
11:58Two of the world's other leading potash producers after the full-scale Russian invasion of Ukraine.
12:05So I'm going to offer a little Canadian editorial here.
12:09A particularly bad time to have a trade war with Canada.
12:13There are lots of reasons a trade war with Canada is a bad idea.
12:17You need Canadian aluminum, for example, for U.S. manufacturing.
12:23And aluminum is basically electricity in solid form.
12:27But the fact that Canada is such a major producer of potash is another good reason, that we're a great
12:33trading partner.
12:35Fertilizers like potash may be somewhat protected from the Iran war,
12:38but they're not a perfect substitute for those nitrogen-based fertilizers coming through the Strait of Hormuz.
12:44And although prices of any commodity, including fertilizer, go up and down,
12:49for those who have spent their careers dealing with the fertilizer market, this time may truly be different.
12:55How does this compare with prior sort of crises, supply chain crises we've had?
13:01It doesn't. This is brand new.
13:04We have never experienced anything like this in the fertilizer market.
13:06I've been at it for 24 years now. I've never seen anything like it.
Comments