The closure of the Strait of Hormuz is disrupting global fertilizer shipments, causing shortages and price hikes for Texas farmers.
Dr. Mark Welch, professor and extension economist for Texas A&M University AgriLife Extension, says the bottleneck threatens to delay deliveries during the crucial spring planting season, potentially reducing yields for a broad range of crops.
Impact on farmers
"In terms of managing around that, we certainly have resources — not only in Texas but around the country — of models and decision aids that help producers be more efficient with their application of fertilizers," he said. "In the U.S., particularly when it comes to nitrogen fertilizer, we are widely and primarily independent in terms of our production."
But much like the crude oil and gasoline markets, Welch says that does not insulate farmers, or consumers, from price impacts.
Impact on food prices
Welch says most of the corn grown in America is used for animal feed, but if grain prices go up due to the turmoil oversees, feed costs would also increase.
It's a domino effect — a shortage of fertilizer passing through the Strait of Hormuz will raise prices, which in turn makes grain more expensive. Then, farmers have to pay more to feed their livestock, potentially affecting the profit margin of beef, pork and poultry producers who will likely make up that money by passing the increased cost onto consumers.
That's in addition to the rising price of crude oil, which also increases energy costs for farmers.
"It costs more to keep the lights on, to run the factory, to move stuff around, to process it," he said. "That's a major component of food cost and food prices as well."
Reaction from farmers
Welch says the level of concern for Texas farmers depends on where they're located in the state and what crop they're growing.
"For many, their fertilizer supplies and needs would have been pretty well in place around the end of February, early March, before we saw the major price spike and disruption," he said. "But if you're putting on some fertilizer, say mid-season, certainly that's going to have an impact."
Welch says producers are doing the best they can to take care of their customers, by managing the cost of the inventory they had on hand at the beginning of the conflict in Iran and closure of the Strait — but they'll have to replace that inventory at a much higher price.
According to Welch, the long-term broad impacts depend on how long the conflict in the Middle East continues.
"To the extent of months and months?" he said. "Are we looking at weeks? That would have a significant impact if we're drawing that into another growing season, that really starts to change the landscape significantly."
Ron Corning is the host of KERA's forthcoming talk show, NTX Now. Got a tip? Email Ron at rcorning@kera.org.
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