The Strait of Hormuz blockade affects not only oil and gas but also fertilizers

The disruption of shipping through the Strait of Hormuz has impacts on the global market that go far beyond the energy sector. The breakdown in the fertilizer supply chain is becoming a key driver behind a new wave of rising global food prices.

According to ChaseTrade, Citibank Research released its latest commodities report on March 11, highlighting a risk chain underestimated by the market: The shipping disruption in the Strait of Hormuz is not just an energy crisis but also brewing into a fertilizer crisis, which will deeply impact global grain prices through cost transmission mechanisms.

The report signals a clear bullish outlook: Citibank has raised its target prices for CBOT corn to 475 cents per bushel, wheat to 600 cents, and soybeans to 1250 cents, over the next three months, and notes that fund positions have shifted significantly toward net long.

With multiple catalysts such as tightening fertilizer supplies, increased U.S. export competitiveness, and changes in biofuel policies, the upward skew of the CBOT grain complex is strengthening.

Fertilizer is the Hidden Main Player in This Crisis

While market attention is focused on the impact of the Strait of Hormuz on oil and gas supplies, Citibank’s analysis reveals a deeper transmission pathway — the rupture of the fertilizer supply chain.

According to Citibank’s data, Middle Eastern countries exporting through the Strait of Hormuz hold a significant position in global fertilizer trade:

Urea: Middle East accounts for about 36% of global trade, with over 90% of regional urea production exported;
Ammonia: Middle East accounts for about 29% of global exports, with approximately 16% transported via the Strait of Hormuz;
Diammonium phosphate (DAP): Middle East accounts for about 25% of global trade;

The importance of fertilizer to food production is self-evident — fertilizer costs account for 50% to 60% of the variable costs of major grains. If fertilizer supplies remain tight, the impact on agricultural yields will be profound and lasting, especially for key global producers like Brazil and India.

Even more concerning are the second-order effects: the Strait blockade reduces LNG flows, which in turn forces other regional fertilizer plants to shut down. Some Indian urea producers have already closed plants due to LNG supply cuts caused by the Iran war, directly threatening fertilizer supplies for the next planting season in Brazil and India — both of which will begin planting next month.

Citibank’s bullish scenario explicitly states that if the Strait remains blocked for more than six weeks, it will decisively push up corn and wheat prices.

Citibank Raises Price Targets for Major Grains, Strengthening Bullish Sentiment

Citibank has significantly upgraded its price forecasts for the CBOT grain complex:

Corn: Tightening supply and demand, more bullish

Citibank raised its 3-month target for corn to 475 cents per bushel and its 12-month target to 525 cents (base scenario). In a bullish scenario, prices could reach 600 cents.

Citibank expects USDA to further reduce the new crop planting area in its late March report to 94 million acres, tightening supply. Additionally, U.S. ethanol production remains strong year-over-year, and discussions around shifting from E10 to E15 are advancing, providing additional bullish signals. Brazil’s drought and reduced planting area may also lead to lower-than-expected supplies.

Soybeans: Chinese demand supports prices, biofuel policies add volatility

Citibank expects soybean prices to rise to 1250 cents within three months and stabilize around 1200 cents over the next year. China continues to purchase U.S. soybeans and has committed to further trade negotiations, providing a price floor.

Furthermore, the U.S. Renewable Volume Obligation (RVO) revision is expected to be finalized by the end of March, which will significantly impact soybean oil demand and crush margins, acting as a dual catalyst for prices. In a bullish scenario, soybean prices could reach 1450 cents.

Wheat: Fertilizer and geopolitical factors as dual catalysts

Citibank projects an average wheat price of about 600 cents per bushel by 2026, with a bullish target reaching 700 cents.

Wheat is highly sensitive to Middle East tensions: on one hand, fertilizer supply constraints will force U.S. farmers to reduce fertilizer application, impacting yields; on the other hand, major disruptions in Russian supplies or unexpectedly high European import demand due to drought could serve as additional price catalysts. If the Middle East conflict is resolved within four weeks or a ceasefire in Ukraine restores Black Sea shipping, prices could fall back to around 500 cents.

Additionally, the latest Commitments of Traders (COT) report shows that fund managers’ positions reflect a significant shift in market sentiment. Corn managed money has turned net long at 53,000 contracts; soybean managed money is net long at 198,000 contracts; wheat managed money remains net short but has narrowed to 25,800 contracts net short.

Meanwhile, producer hedging coverage remains insufficient, and at current prices, there is motivation to hedge, which could add liquidity and support prices.

Farm Income and Cost Pressures: Rising Fertilizer Prices Will Boost CBOT Futures

Before the escalation of Middle East tensions, U.S. farm incomes remained stable overall, and input prices were relatively steady. However, fertilizer prices have already begun rising and could soon reach the high levels seen during the Russia-Ukraine conflict — when fertilizer prices soared and had a profound impact on global food markets.

Seeds, fertilizers, and fuel account for over 60% of the non-fixed costs (CoP) for typical staple crop farms. Rising energy prices will further increase total costs by about 6% to 8%. Citibank believes this inflationary pressure will significantly push CBOT futures prices higher.