Conflicts in the Middle East have a massive impact on the global supply of nitrogen and phosphate fertilizers. These products are essential for boosting crop yields and feeding the world. Josh points out that the Middle East and North Africa account for half of the global urea trade. While the world usually focuses on oil and gas prices during regional conflicts, the fertilizer market is arguably more important for human survival.

The map represents half of the world's urea trade. If something ever happens, this is a terrible idea. Exactly what we're living through today. For all the attention's on the oil, the attention's on the gas. Well, you can't eat oil and you can't drink gas. Fertilizer raises the food in the grocery store that you go buy.

This geographic concentration makes the global food supply chain vulnerable. When regional stability is threatened, the direct and indirect impacts on fertilizer supplies can lead to rising food prices and shortages around the world. Josh suggests that the fertilizer situation is a much bigger deal for the agricultural industry than oil and gas are for the energy sector.

Nitrogen fertilizer prices have seen a dramatic surge in a very short period. In early December, a urea barge at New Orleans was trading for 350 dollars per short ton. Recently, that price nearly doubled to almost 700 dollars. Even with this massive increase, the United States remains one of the cheapest markets in the world for fertilizer. Domestic prices are still about 70 dollars per ton below the cost of global replacement. This price gap is so significant that traders are actually buying fertilizer off American rivers to export it to other countries for a profit.

We are effectively doubled the price of urea. And the scary part is it is not done. If the world price did absolutely nothing else, we still need to rise another 70 dollars a ton to get in line with world replacement today.

The global supply chain faces severe risks due to geopolitical tensions, specifically around the Strait of Hormuz. Three of the top ten global urea exporters, Qatar, Saudi Arabia, and Iran, are located behind this strait. Together, they export 13.5 million tons annually. To put that in perspective, that amount of fertilizer is enough to cover 81 million acres of corn. This is nearly equivalent to the entire annual corn crop in the United States. If the strait remains closed, the loss of these exports creates a massive hole in the global supply that cannot be easily filled.

Josh explains that the world has lost its safety net for fertilizer supplies over several decades. While global demand has grown rapidly, production capacity has not kept pace. This has led to a long term decline in stockpiles. Current generations have become used to these low inventory levels, but a trader from the 1980s would be shocked by how little backup supply exists today. This lack of excess capacity is the primary reason for the extreme price volatility seen in the market.

We have seen global demand grow much, much quicker than global production capacity has. We don't have that excess capacity around the world. We don't have stockpiles to make up that difference anymore.

The crisis extends beyond just shipping lanes. Natural gas is the primary feedstock for urea production. Because the Strait of Hormuz is restricted, the flow of natural gas is also interrupted. This affects major producers like India, the second largest urea producer in the world, who cannot get the gas needed to run their plants. Combined with reduced production in Europe due to high energy costs and export restrictions in China, the global fertilizer market is facing a perfect storm of supply constraints.

Nitrogen fertilizer production depends almost entirely on natural gas. This input goes through a process to create anhydrous ammonia, which is then refined into the products farmers use in their fields. The current situation in the fertilizer market differs significantly from the crisis seen in 2022. During that period, European production collapsed because natural gas prices became too expensive and the Nord Stream pipelines were damaged. There were also deep concerns about losing supply from Russia, a major exporter of nitrogen, phosphate, and potash.

Prices shot up and they were actually higher than where they are today. But the reason it wasn't as big a deal because grain prices were much higher. Today we are moving. We are obviously very, very high. We're still short of what those values were, but they have gotten no reward. On the grain side, that differential, that value is significantly worse today than what it was back then.

Josh notes that the economic pressure on farmers today is comparable to the struggles of the 1980s. While fertilizer prices were higher in the past, high grain prices provided a safety net. Now, farmers face high costs without the benefit of expensive grain. This imbalance creates a global risk. If fertilizer supply remains restricted, certain regions may have to plant with less or no fertilizer. Once the planting season passes, the lost yield potential cannot be recovered. This could eventually force grain prices higher to reflect the lack of supply.

The United States is a massive producer of natural gas, yet it remains a major importer of nitrogen products like urea. We import five to five and a half million tons of urea annually. The primary obstacle is not a lack of raw materials but a lack of production capacity. We have the gas supplies, but we do not have enough facilities to convert that gas into the fertilizers we need.

Why are we exporting a raw material like gas when we can build a production plant, produce these tons here at home and meet our own demand? We can sever that relationship. We can sever that need for the imported ton. We can sever that worry about what is happening in the Gulf and what is happening in Russia and Europe.

Josh argues that building domestic production would provide a significant safety net. It would reduce reliance on volatile markets in Russia, Europe, and the Middle East. While domestic prices would still follow global trends, the physical supply would be more secure. Additionally, US environmental regulations are stricter than in many other parts of the world. This means the US can produce urea more cleanly than many of its competitors.

Global production is currently facing significant pressure. In Europe, high input costs are forcing manufacturers to consider slowing down. Natural gas prices there recently climbed to 25 dollars per MMBtu. In North Africa, production in Egypt depends on natural gas from Israel. When Israel shuts down production due to regional conflict, it directly impacts the supply of urea from that region as well. While North America is in good shape, the market remains limited by how much can be produced each year.

American urea prices are currently sitting at a significant discount compared to the global market. While Middle East urea futures have traded as high as 760, physical barges in New Orleans have only reached 695. This gap exists because there is a general belief that enough supply is already on the way to the United States. Recent data shows solid vessel lineups through the end of March, leading many to believe the market is in a safe position.

The highest price we've had trade for a physical barge this week is 695. We are a drastic, drastic discount to the world right now.

Josh warns that this confidence might be misplaced. There is no guarantee that these imports will actually arrive. Vessels currently in transit can be diverted to other global ports if the price is right. Furthermore, a large portion of contractually obligated tons originate from the Middle East. If shipping lanes are blocked or restricted, those supplies will never reach the US market. The industry may soon realize that the supply situation is more fragile than it appears, which could cause prices to spike suddenly.

There is no guarantee that we get the April, May, June imports like we normally do, because again, a lot of our contractually obligated tons that normally come here originate from the Middle East. If they can't get to the straight, we're not getting them.

Nitrogen, potash, and phosphate fertilizers are not interchangeable. Each one serves a specific purpose in the soil. While there are different forms of nitrogen like urea, liquid fertilizers, and anhydrous gas, the supply for each is carefully balanced. If farmers try to switch from urea to another nitrogen product due to high prices, the limited supply of those alternatives will quickly drive their prices up too. Market fundamentals usually fix these issues, but massive physical disruptions can break the system.

The Strait of Hormuz is a critical chokepoint for the global fertilizer market. Saudi Arabia, Qatar, and Iran produce 13.5 million tons of urea each year. This is a huge portion of the global supply. Josh notes that the world does not have the excess production or stockpiles to handle such a significant loss. If this blockage continues, many regions will struggle to find any physical product at all.

Urea is popular because it is easy to move. It is a dry good that can be handled just like corn or wheat. In some parts of the world, it is moved in simple sacks on carts or even by hand. This portability makes it a global commodity. However, bypassing a sea route like the Strait of Hormuz by using trucks or rail is very inefficient.

A 30,000 ton ship is equivalent to about 1,200 trucks. Trying to haul that amount across a country like Saudi Arabia is a much higher cost value chain than moving it by sea.

Urea prices reached an all-time high of over $900 per ton in early 2022. Current geopolitical tensions and shipping disruptions in key straits could cause prices to exceed those records. This potential price spike is happening at a time when grain prices are not high enough to reward farmers for the increased cost of inputs. Many farmers are currently deciding whether to buy expensive fertilizer or simply accept lower yields because they cannot afford the necessary nutrients for their crops.

The right set of circumstances, the right timeline of the straight being shut down, the right amount of demand stepping up, I think we can blow right through it. And unfortunately that will happen during a period the grain price is not supporting or rewarding the farmer. It just makes a terrible situation so much worse.

Josh is watching wheat most closely among agricultural commodities. While North America has the financial strength and government support to secure its food supply, other regions like Australia and Eastern Europe face more immediate risks. Many countries rely on wheat as a primary staple. If global yields drop due to high fertilizer costs, food security could become a major concern for less wealthy nations. Josh notes that while first world countries may only see price increases, poorer nations could face struggles reminiscent of the 1980s.

High input costs might also lead to a shift in what farmers choose to plant. If the cost of growing corn becomes too high, farmers may switch to soybeans at the last minute. This shift would create a surplus of soybeans while significantly lowering the expected supply of corn. Such a move would be bearish for soybean prices but very bullish for corn prices.

The current commodity market is in uncharted territory. Josh notes that this is a brand new situation that defies previous experience. Even those with fifty years in the market find this landscape theoretical and unpredictable. It is difficult to count any single crop out because when one price rises, others tend to follow. This uncertainty creates a environment where market participants are learning as they go.

The present situation is significantly more severe than the supply shock of 2022. While the industry feared losing Russian exports in 2022, those exports actually increased from a 7 million ton average to nearly 10 million. Today, the fundamental supply perspective is much worse than it was during that period.

The only thing keeping the price from shooting significantly higher back than 22 is that grain values are so low. Farmers are losing money this year. There has not been a single instance where you could look to a crop and say that is profitable.

Low grain values are currently the only factor preventing fertilizer prices from skyrocketing. Farmers have been losing money throughout the year. Many who delayed buying fertilizer in hopes of better prices are now finding that costs are rising while grain prices remain stagnant. This creates a situation where the financial outlook for the coming years is increasingly difficult.

The closure of the strait has already caused lasting damage to the fertilizer market for the 2026 calendar year. If the passage opens tomorrow, prices might drop quickly because they are currently at significant highs. However, the overall price floor for phosphate and nitrogen has risen for the rest of the year regardless of immediate changes. Josh warns that if the closure lasts another week or two, the negative effects will likely continue through the 2027 planting season.

I think we have already done lasting damage for the 2026 calendar year. If the strait opens tomorrow, I think we see prices down immediately just because we are as high as we are. But we have raised the price for phosphate and nitrogen for the entirety of 2026.

These disruptions make future buying decisions much harder for customers. The market is facing a reality where current events have already locked in higher costs for the foreseeable future. This situation complicates planning for both the short term and long term.

The urea market attracts far less speculative interest than commodities like oil or corn. While hedge funds dominate larger markets, urea is primarily driven by manufacturers and traders. The volume of urea traded is only a fraction of what is produced globally. In contrast, corn trades at ten times its actual annual production.

Potash remains a bright spot in the fertilizer industry. Josh notes that it is very affordable compared to other inputs. While farmers might feel the price is high, it is normal when compared to historical data and grain values. Global supply is plentiful. New production is expected to keep the market stable for years to come. For everything wrong in the world, potash is one thing that is going right.

Production limits are a major concern for urea. Most plants globally are running at maximum capacity to take advantage of current margins. The only significant production offline is in Europe. High natural gas prices make it impossible for European plants to restart. Some facilities that are still running might even need to shut down soon.

The price is so high, it does not make sense to restart any of those offline plants. In fact, I'm afraid that the Dutch TCF price and the rest of the gas prices in Europe are so high, we can start to see some of those plants that are currently online start to shutter.

The United States has access to cheap natural gas, but it cannot easily increase urea production. Building new facilities requires years of engineering and massive financial investment. Josh explains that the US has the gas, but it is in the wrong place to solve the current global shortage immediately.

It takes years before you produce the first ton. So unfortunately, this is something we should have been doing years ago. It is cheap gas, but it is in the wrong spot.

Even if the conflict ends and shipping routes reopen immediately, the physical reality of logistics means much of the damage is already done. Josh explains that it takes 30 days for a vessel loaded in the Middle East to reach its destination. This month-long travel time means that any shipments starting today would not arrive until the end of April. This timeline puts the entire spring season at risk. If the disruptions continue for just a few more weeks, the window for the spring season will likely close entirely.

If this thing lasts another couple weeks, I'm afraid too much of the damage is done. We're already stuck. The first vessels are not going to arrive here until the very last parts of April. You're almost missing spring season.

From a market perspective, an immediate reopening would likely trigger a sell off. Many traders are currently holding profitable long positions and are looking for any reason to sell. They are sensitive to any news and are ready to jump at shadows. While this might lead to lower prices in the short term, it does not solve the physical supply problem. The logistical delays are already baked into the system.

The planting season is just beginning. In the Deep South, farmers have already started putting crops into the ground. In areas like Kansas City, planting usually waits until April. However, warm temperatures and dry forecasts might encourage an earlier start this year.

It is currently a very profitable time for nitrogen and urea producers based in North America. These companies benefit from cheap domestic natural gas as an input while selling their products at global market prices. Most of these facilities aim to run at full capacity to take advantage of these margins.

If you are based in the North American marketplace and you are getting to sell all your nitrogen goods at world pricing and you are still getting North America cheap gas as your input, you are having a very, very good year.

Operating these plants at maximum capacity carries significant risks. The manufacturing process involves extreme temperatures and high pressure, which is incredibly hard on equipment. Josh notes that parts vibrate and break down frequently. If a facility tries to push production levels too high, they run the risk of a total plant failure.

The one thing that surprised me the short time I spent working for a manufacturer is how often those plants have problems. It is a high temperature, it is a high pressure thing. It is very hard on equipment.

Oil refining and natural gas refining are separate engineering challenges. Even though major oil companies often manage both, the actual production methods differ from each other.

I think it is a completely different process. Obviously, it all comes down to the engineering and all that kind of stuff.

The current situation with the strait closure represents a worst-case scenario that changes every day. There is no single point that defines the bottom of the crisis. Instead, the situation worsens the longer it persists. If the strait remains closed tomorrow or a week from now, that will become the new worst-case scenario. This creates a cumulative negative effect on the global economy.

The longer this goes on, the worse it gets. So the global economy and consumers of food, which is everyone, we're short theta. Every day that goes by, it gets worse.

Josh explains that everyone who consumes food is effectively short theta in this situation. In finance, being short theta means that time is working against you. Every passing day without a resolution increases the strain on the system and the cost to consumers worldwide.

The situation in the fertilizer market has shifted from simple shipping delays to a significant production crisis. Recent attacks on gas fields in Iran and Qatar have damaged the facilities that feed nitrogen production. Even if the shipping routes were to reopen immediately, the physical damage to these plants remains a major hurdle. Repairs for such infrastructure are estimated to take three to five years. It is incredibly difficult to fix these facilities while the threat of further drone or missile strikes continues.

Before these recent conflicts, the urea market was already under pressure. China had stopped exporting until August, and European production had dropped to 75% of its normal levels. These two factors alone removed about nine million tons from the annual supply. However, the Persian Gulf accounts for 13.5 million tons of production. Losing this output creates a gap that other sources cannot fill. There are no secret stockpiles to tap into.

The easiest way to describe it is we go back to our Econ 101 classes. Supply has to match demand. It has to be balanced. And so when it doesn't, it's trying to find that. The answer to nitrogen right now is no, you're not missing anything. It does not exist. Next thing you do to balance it, you take that price up high enough that you kill demand.

Josh Linville notes that the market is currently seeking balance through demand destruction. When supply simply does not exist, prices must rise high enough to force buyers out of the market. Building new production facilities is not a quick solution. From securing funding and navigating red tape to engineering and construction, the process takes years rather than months.

Brazil stands as the world's largest importer of urea, followed by India and the United States. It is a common misconception that being a major oil producer leads to fertilizer independence. Brazil is a giant oil producer, yet it remains heavily dependent on urea imports because urea production relies on natural gas. While some industry analysts try to use oil prices as a proxy for fertilizer trends, Josh argues that this comparison is often unreliable due to the unique differences between the two markets.

Russia is currently the top exporter of urea in the world. Other major exporters include Qatar, Iran, Egypt, and Saudi Arabia. Many of these key producers are located in volatile regions, such as those near the Strait of Hormuz. This geographic concentration makes the global fertilizer supply chain incredibly fragile. Josh suggests that the current supply risks for fertilizer are actually more severe than the risks facing the oil market.

I understand everybody focusing on oil. I understand everybody focused on gas. That is what people know. That is what gets the headlines. This is a significantly worse fertilizer situation. If you had asked me several weeks ago to come up with a nightmare scenario, we are living in the time period it needs to happen with the areas where it is happening.

The current geopolitical landscape represents a worst-case scenario for global agriculture. The stability of the food supply depends on these specific regions remaining open for trade. If a major player like Russia decided to halt all exports to cause economic pain, the global impact would be immediate and severe.

The fertilizer industry is getting a lot of global attention right now, but this fame will not last long. Josh has spent weeks trying to avoid being too dramatic about the situation. He does not want to build his business on the failures of other people. He tries to stay cautious and stick to the facts.

I don't want to build this business on the back of other people's defeat and failure. We are trying very hard to be very cautious and factual. Even doing all that, it still makes for a very, very bad story.

Even when being careful, the facts show a very dark picture. This is not about making a story sound worse than it is. The situation is just very difficult and nasty right now.

Josh emphasizes that individuals must stay updated on world events because local markets are part of a global system. It is a mistake to assume that what happens in one's own backyard represents the entire market. For those in the physical supply chain, communication is the most critical tool. Farmers and retailers should talk to their suppliers and distributors to understand exactly what is available so they can plan accordingly.

Many people are currently weighing price risk against the need for physical goods. Josh suggests that the insurance of having product in place often outweighs the risk of paying a higher price. Having the physical product in place is more prudent if you know you are going to need it.

The insurance to make sure you have the physical product in place outweighs the price risk that is in the market today. It does not mean there is not price risk, but it is more prudent to make sure you have the product in place if you know you are going to need it.

The entire market situation can shift rapidly based on very little information. Josh mentions that all of this could change with a single social media post. Many people are simply waiting for the news that trade routes have reopened and traffic can move again.

All of this changes with a single tweet. I think a lot of people are waiting on that tweet. I would welcome it. I cannot wait for the tweet that says reopen the traffic. Go get it done.

Insurance coverage does not change the fundamental risk of navigating dangerous areas like the Strait of Hormuz. For ship owners, the potential loss of a vessel or the death of a crew member far outweighs any financial protection or potential profit. It is a matter of ethics and safety rather than just money. Josh points out that no owner wants to explain to a family that they sent a loved one into danger because they were motivated by insurance payments or greed.

It just comes down to, I don't care if you give me insurance on my boat. I'm not going to risk sinking my boat. I'm not going to risk my crew getting killed. I don't want to call family members and say, I was greedy and somebody said insurance money, so I went ahead and sent them in harm's way.

Instead of taking these risks, owners prefer to keep their boats idle. It is much easier to tell the crew to take a break and wait for a call when the passage is safely reopened. The risk of losing the entire asset and the lives on board is simply not worth it.

The fertilizer market is unique because its primary drivers change constantly. In late 2021 and 2022, global urea prices were heavily influenced by natural gas prices in Europe. At that time, traders watched the Dutch TTF gas values to predict production losses. Today, that connection has weakened. The market has shifted its focus toward supply logistics and the reopening of key shipping straits.

Our market focus shifts, and that is one of the biggest things people struggle with. For starting late 2021 and 2022, we made a lot of comparisons to the Dutch TTF value because that was the price that was driving the global urea price. Since that point, it has jumped the shark. Now it is just about the supply. It is completely disconnected from everything.

Unlike the oil market, urea is not heavily financialized. Even when a shortage seems obvious, prices do not always spike to their theoretical maximum immediately. Josh suggests this delay happens for several reasons. Traders may fear that high prices will kill demand right before the planting season. Some companies also have strict investment limits that prevent them from taking larger positions. After a period of intense volatility, many speculators simply choose to take their profits and step away rather than risking more capital.

This market has been living on adrenaline now for three weeks. A lot of people have probably made a pile of money on the way up. They might be sitting there saying, sure, there is more upside, but I have made my year and I am not going to put that at risk. I do not care if it looks like it is going up another two, three, or four hundred dollars. I am done.

The current logistical bottlenecks also create a difficult environment for ship owners. If a vessel is stuck behind a closed strait, the owner continues to pay for the crew and operations without generating income. The profitability of shipping in this market depends entirely on whether a boat is on the right side of the blockage.

Josh approaches farm marketing with a focus on simplicity. He suggests that farmers should view their work like manufacturing. Instead of trying to perfectly time the market by buying inputs at their absolute lowest price and selling grain at its absolute peak, the goal should be finding the value in between. At its core, farming is the relationship between inputs like fertilizer or diesel fuel and outputs like corn or soybeans.

Your manufacturer doesn't try to buy the low of every single input and sell the high of every single output. They're looking for that value in between.

By stripping away complicated financial tools, Josh focuses on a basic ratio: how many bushels of grain it takes to pay for one ton of urea. This method provides a clear metric for profitability. For example, a farmer would much rather spend 55 bushels to cover the cost of a ton of urea than 155 bushels. This approach keeps more grain for the farmer to sell for profit later. Focusing on the value between these two points gets back to the basics of successful farming.

If trade remains closed for the next three to six months, it is almost certain that urea and agricultural prices will rise. Josh explains that while market dynamics make it risky to use the word impossible, the probability of prices being higher in that scenario is nearly one hundred percent.

I would say it is a 99.999 to whatever number you want to go to percent that it would be higher in that scenario. It's too many tons being lost.

The volume of production being lost is simply too significant for prices to drop or even remain stable under those conditions.

The fertilizer market is currently facing tight supplies which naturally push prices higher. The market is attempting to rebalance itself, but demand has not yet dropped enough to reach an equilibrium. This situation could shift if governments begin to intervene through subsidy payments to manage costs.

The market is trying to rebalance it. We have not found it. If we start to see governments starting to play a bigger part in it, subsidy payments or governments coming in and subsidizing the price of it, that is what is coming.

High fertilizer prices make farming less profitable, but they do not necessarily lead to a loss in total farmed acres. Farmers will continue to farm the land they have because that is their profession. Instead of leaving land empty, they may change their strategy or switch crops. However, Josh notes that these adjustments can lead to significant hits to overall yields under the right circumstances.

The best approach for governments worldwide is to let free markets operate naturally. Market interference often complicates agricultural dynamics. When governments impose import or export restrictions or provide subsidy payments, it can lead to higher prices for essentials like fertilizer. These interventions make it easier for costs to rise because the financial cushion is there. Josh believes that less government interaction generally leads to better outcomes for everyone involved.

The best thing the governments can do worldwide is let the free markets do what they do best. Let this market figure itself out. The more the governments interact, the worse it gets.

Despite a general preference for free markets, specific circumstances can justify government support. The current challenges facing farmers are not of their own making. Events like war create unique pressures that farmers did not cause. In these specific cases, subsidy payments are justifiable because the external factors are entirely outside the control of the agricultural community.

The fertilizer market operates with a significant lack of accessible information compared to other commodities. At StoneX, the focus is on trading fertilizer futures and over-the-counter products like Urea, UAN, and phosphate across global markets. Because information is scarce, providing a forward-looking view of the market is essential for manufacturers, retailers, and traders to navigate price movements effectively.

For many farmers, fertilizer represents the single largest cost per acre, yet they often have the least amount of information regarding its market dynamics. Understanding the factors that drive prices helps them make more informed decisions even if it does not change the price itself. For example, geopolitical events in the Middle East serve as an immediate signal for price hikes. Josh Linville notes that being aware of these trends allows farmers to act quickly.

Knowing the whats and the whys and where is not going to change the price, but it is going to make it more understanding of what is going on. We were telling people for a while if something were to pop off in the Middle East, you do not need to wait for us to put out a note. Prices are going up, get ahead of this.