NASHVILLE, Tenn. (RFD NEWS) — Escalating conflict in the Middle East is disrupting key shipping lanes, driving higher fuel and fertilizer costs that are beginning to impact U.S. agriculture.
Vessel traffic through the Strait of Hormuz has dropped more than 90 percent since late February, following attacks on ships in the region. The Strait handles roughly 20 percent of global oil flows, and disruptions have pushed U.S. diesel prices to $5.07 per gallon, up 29 percent in two weeks. Marine fuel costs have also surged, with very low sulfur fuel oil climbing 87 percent to over $1,000 per metric ton.
Fertilizer markets are reacting as well. About half of global urea exports move through the Persian Gulf, and prices at New Orleans have jumped 37 percent since the conflict began. Industry groups are now urging railroads to prioritize fertilizer shipments ahead of peak spring demand.
The White House has responded with a 60-day suspension of the Jones Act for energy and fertilizer products, aiming to ease domestic shipping constraints and stabilize supply chains.
The situation adds uncertainty heading into planting season as global logistics and input costs remain highly sensitive to geopolitical developments.
Fuel prices continue to rise due to ongoing geopolitical conflict in the Middle East, and lawmakers are looking at ways to offer relief. Sen. Chuck Grassley (R-IA) told reporters this week that he has a few ideas.
“We can take countervailing duties off of fertilizers…get E15 year-round nationwide,” Grassley said. “Right now, we’re told that it has got to be connected to another bill, and we see diesel prices going up,”
Crude Oil Drops Sharply As Diesel Stays Nearly $2 Gallon Higher YOY
Crude oil prices are down sharply this morning, with WTI hitting a low of around $86 a barrel. When it comes to current diesel prices, AAA reports the average price per gallon nationwide is $5.36, a gain of 30 cents week-over-week. Year-over-year, diesel is up more than a $1.75/gal.
Sen. Grassley says talks are underway to consider additional relief payments for farmers facing elevated costs such as fuel. While it could help, Grassley says that is not anyone’s first choice.
“We hear farmers want their money from the marketplace,” Grassley continues. “So, that $14 billion that E15 year-round will bring into agriculture would be even a better way to get it than the $15 billion that they’re talking about putting in with the Iran money — but both would be better as well, so those are ways to help.”
As farmers and ranchers navigate rising input costs, lawmakers are considering a roughly $15 billion aid package to help, which would be tied to the spending bill for the war with Iran.
Fertilizer Prices Remain Elevated as Trade Corridors Stay Closed
Fertilizer costs are a big part of the equation, weighing on farm country. DTN shows six of the eight major types ended last week higher than the previous month. UAN 28 saw the largest gain, it is up 15 percent on the month. Urea gained 11 percent while anhydrous climbed 8 percent.
Looking back, all are more expensive compared to last year. UAN 28 is up 33 percent on the year, while urea and anhydrous both gained 22 percent during the same period.
The Strait of Hormuz remains inaccessible again this morning, and there are growing concerns that some farmers might be without fertilizer supplies this planting season. Trader Same Hudson told RFD NEWS that anything is possible, but warned it will take a long time to get things moving again when the Strait reopens to commercial traffic.
“Even in situations like this, some of these third-world countries, they could have their fertilizer completely rerouted and not even make it to its destination,” Hudson explains. “I’m not going to sit here and predict where, you know, or when that’s actually going to happen because I don’t, I think there’s still a lot up in the air in terms of timing and how much this flows. I think we saw that Russia announced it was going to start limiting exports of ammonium nitrate here for the next month or so. And so, we’ll have to keep in mind that, you know, those strikes last week had a big impact on some of that infrastructure, and getting that back online quickly is going to be difficult. And that’s going to have a big impact on global supplies here, really, from the next eight to 12 months, I would think.”
Hudson says this summer could get interesting, likening current supply chain concerns to those of the COVID-19 era.
“I think the struggle here moving forward is going to be the fact that your fuel markets and fertilizer markets are going to take a much longer time to adjust, even if you can find some normalcy in commerce over there,” Hudson says. “Similar to what we saw in COVID, it’s very easy to get some of the stuff out of the ground, but to refine it and get it to where it needs to go is a completely different story. I think that’s going to be interesting this summer.”
President Trump says talks are underway with Iran to reopen the Strait as soon as possible. While talks are underway, there has been conflicting information on both sides of the fight. Barchart market analyst Darin Newsom says that back-and-forth is driving the volatility right now.
“These markets are nothing but headline-driven at this point,” Newsom says. “So, we see the changing headlines, the differing opinions coming from Washington and from Iran’s official media. And this is what is driving markets. We’re seeing it in the energy sector, and it leaks over into the grains and so on.”
Newsom says algorithmic trading takes these headlines and runs with them, which he says is causing some liquidation in several markets. He says another driver has been talking about President Trump’s now-postponed meeting with China’s President Xi.
“It’s going to ebb and flow from market to market,” Newsom explains. “We’ve seen this predominantly in the metals at this point, with the buying moving over into energies in the grains. We’re seeing some liquidation in the oilseed complex — particularly in soybeans— as these headlines between the U.S. and China continue to not get any better. I mean, certainly they aren’t surprised, but they aren’t getting any better.”
President Trump has officially postponed his meeting with Xi Jinping, citing the war with Iran. The pair was scheduled to meet less than a week from today, but the white house says that the meeting is now being pushed out by several weeks. No official makeup date has been set.
Trump Officials Tease Major Policy Announcement...Will It Be Summer E15?
While Trump will not be meeting with China’s president anytime soon, white house officials are preparing to host a number of farmers later this week. President Trump has invited farmers and biofuel producers to the White House for a “Celebration of Agriculture.”
Some speculate the EPA could release details on renewable volume obligations during that gathering, but others are not so sure. Lewis Williamson with HTS Commodities told RFD NEWS on Tuesday that there are a lot of opportunities to prop up the biofuel market.
“Hopefully we’ll find out something on the RBO and the SRE on Friday of this week,” Williamson said. “That’ll be a wild card as we go forward. I think one of the real shockers could be, and I don’t think it’ll happen, but would be if the Trump Administration says, ‘Hey, we’re going to a mandatory E15.’ You know, some people say, ‘Well, that’s not much.’ It’s a 5 percent jump. It’s a 50 percent jump in what we’re required to do today.”
On Tuesday, RFD NEWS asked EPA Region Six Administrator Scott Mason about Friday’s event on the White House South Lawn and what could be on the agenda. He told us that an announcement would be made, but could not say what it entails.
Ag Secretary Brooke Rollins also said this week that a major policy announcement was on the horizon.
This is a developing story. RFD-TV will be in attendance on Friday with updates on-air and online, including those important to American farmers and ranchers.
