Concerns about fertilizer availability amid turmoil in the Middle East

It’s now been just over a week since the U.S. and Israel launched their first missiles into Iran. And while we are not in a position to speculate how geopolitics will unfold, we can speak to the current and potential economic implications of the conflict. These remain highly uncertain and potentially very widespread – oil and liquified natural gas refineries are shuttered with the Strait of Hormuz paralyzed, bond yields have risen in synch with inflation concerns, and exchange rates are in a state of flux. There is certainly no shortage of economic topics to explore. In this blog though we focus on what the war means for fertilizer availability and prices in Canada ahead of the 2026 planting season.

Understanding the importance of the Middle East in global fertilizer markets

Nitrogen is a vitally important nutrient; one of three macronutrients used in primary crop production. There are many different types of nitrogen fertilizer products, each of which requires different production facilities and – importantly – access to an energy source, typically natural gas. Urea, ammonium nitrate, and anhydrous ammonia are the three most common nitrogen fertilizers produced globally.

Disruptions in major producing regions can upend global trade flows and prices. We saw that in 2022 with Russia’s war against Ukraine: the halt of cheap Russian natural gas to European production facilities, as well as sanctions on Russian exports, choked off supply and caused prices to skyrocket. Collectively, the Middle Eastern countries have an even larger say in global availability of nitrogen fertilizers than Russia: on a nutrient basis, the region has historically accounted for 12% of global production and nearly 25% of global trade (Figure 1).

Figure 1. The Middle East is the largest supplier of global nitrogen fertilizer exports

2018 to 2022. On a nutrient, not product, basis.

Source: FAOSTAT

It’s unlikely other suppliers will be in a position to fill this vacuum. In the European Union (EU), a significant share of global ammonia production—a key input for urea—was lost in 2022 and a pipeline running through Ukraine has remained offline since the invasion. Prior to the Iran strikes, the EU was still only operating at a reduced 75% production capacity; the recent surge in natural gas prices could pressure European producers to further reduce that capacity. China continues to restrict fertilizer exports to meet domestic needs, with urea shipments largely paused until August this year. Before the strikes, it looked highly unlikely Beijing would reverse course on these policies before August; now, it seems even less likely.

Markets have, not surprisingly, reacted to the potential threat to supply. After slowly creeping up all winter, U.S. urea futures shot up $130/ton (nearly 30%) in the first two days after the start of the bombing (Figure 2).

Figure 2. U.S. urea futures surge to begin the week

Urea FOB US Gulf April contract

Source: Barchart, FCC Economics

Eastern producers are more vulnerable to supply shocks

While Canada is a net exporter of nitrogen, some parts of the country still depend on imports to meet their needs. And, depending on the crop and region, there are different times of the season when more fertilizer is required. Obviously, spring planting is a prime consumption period. But in the east, the spring is also a time when winter wheat is typically top dressed. Corn typically requires more in the early summer as well. And post harvest, producers may opt to spread fertilizer before the winter freeze up, in preparation for the next growing season.

As utilization changes month-to-month, so too does Canada’s import volumes (Figure 3). The timing of imports is dictated by seasonal demand, strategic planning and preparing for the upcoming growing season, and weather. Fertilizer movement typically peaks in April and May to support just-in-time delivery for seeding and summer topdressing.

Figure 3. Canadian average nitrogen fertilizer imports by month

2020 to 2025 data.

Source: CIMTD, FCC Economics

A RealAgristudies survey conducted in 2022 found that, by late March, 45% of producers had their spring fertilizer needs already stored on farm. However, there was a significant regional split: more than 50% of producers in the Prairies had their fertilizer on farm, but only 17% of Quebec producers and 10% of Ontario producers could say the same. In the Maritimes, the number was 0%. Indeed, on the east coast, the situation will be extremely challenging as price is frequently determined when producers pick up product on the way to the field – pre-buying at a set price is rare. Producers in eastern Canada simply do not have the same on farm storage capabilities, making them more vulnerable to market conditions in the spring.

Now, despite the lack of on farm storage, some inventory may be sitting with wholesalers and retailers. Statistics Canada’s latest fertilizer inventory data for December provides insight into these inventory levels and here again we note a regional divergence. While urea inventories in the west are the highest levels they’ve been in a decade, in the east, they are at their lowest levels since 2017 (Figure 4).

Figure 4. December urea inventories high in the west, low in the east, compared to recent years

Source: Statistics Canada, FCC Economics

However, one reason stocks looked elevated is that many farmers chose not to pre-buy or apply fertilizer last fall. That meant less product was sold, leaving more fertilizer sitting in retail and wholesale storage heading into winter. It also sets up the possibility of stronger than normal demand at planting, at a time when global supply is already tight.

Any disruption to imports or shipping during this narrow window would create supply challenges and higher prices to support just‑in‑time delivery for seeding and summer top‑dressing. Given the aforementioned shipping bottlenecks, some fertilizer may not reach North America in time for spring planting: a shipment that would normally be loading in the Middle East today might not arrive to the farmer until May. This may force farmers to adjust application timing or reduce use.

The impacts to prices and profitability

Canadian prices mirror the trends in the U.S. futures market. Complicating matters for farmers, Canada still has a tariff on Russian fertilizer imports. These tariffs are adding approximately $100/mt for Canadian producers compared to their U.S. counterparts.

Not all crops require the same amount of fertilizer. Pulses, for example, are nitrogen-fixing, meaning they do not require it. But others are more fertilizer intensive. In terms of cost (for all fertilizer, not just nitrogen), and prior to this recent price movement, we estimated fertilizer would account for 20-25% of the total cost of growing a crop in 2026 (Figure 5).

Figure 5. Fertilizer costs as a percentage of total cost, by province and crop, pre-war

Source: Government on Saskatchewan, Government of Ontario, Statistics Canada, FCC Economics

Unlike 2022, when rising input costs were offset by strong commodity prices, 2026 is shaping up very differently. We estimate a 40% increase in the cost of nitrogen would cut average Saskatchewan margins in half (from $50/ac. to $25/ac.) for an average wheat/canola rotation. It would also lower average margins in Ontario from $365/ac. to $345/ac. for an average corn/soybean rotation. Note that these margin estimates are provincial averages and exclude the cost of land which is much higher in Ontario than in Saskatchewan.

The bottom line

The above-mentioned margin estimates only account for the shock to the nitrogen price. In other words, they do not consider potential margin compression because of other fertilizer price increases, potential yield reduction (resulting from less fertilizer being used) or higher fuel prices. A prolonged conflict could disrupt regional fertilizer production, especially if natural gas supply—critical for nitrogen fertilizer production —continues to be limited out of the Strait of Hormuz. Unless the war is resolved quickly, expect global fertilizer supplies to tighten further and put additional pressure on global food production and prices.

Communication during turbulent times such as these is crucial. Farmers may want to contact their crop input retailers to confirm they’ll have the tonnes they need this spring and work together on any backup plans which might include adjustments to crop mix, fertilizer rates and target yields. Early discussions with credit providers may be necessary as well should the need arise as seeding approaches.

Leigh Anderson, Senior Economist
Justin Shepherd, Senior Economist
Graeme Crosbie, Senior Economist

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