Impacts on oil and liquefied natural gas facilities and constraints on shipping through the Strait of Hormuz has analysts reporting uncertain economic outlook for producers.
The latest Farm Credit Canada report states the Middle East accounts for about 12 per cent of global nitrogen production and nearly 25 per cent of exports. The region is reported to play a key role in global fertilizer markets, as nitrogen is a critical nutrient used in crop production, including in products such as urea, ammonium nitrate and anhydrous ammonia.
Supply chains could be significantly affected by disruptions in the region and with European production still below capacity following the Russian invasion of Ukraine, along with China maintaining export restrictions to meet domestic demand, analysts state other major producers are unlikely to offset shortages,
U.S. urea futures rose about $130 per tonne, a nearly 30 per cent increase, in the days following the start of the conflict.
While Canada is a net exporter of nitrogen fertilizer, some regions, such as Eastern Canada, rely on imports during peak demand periods.
Fertilizer use usually sees an increase in the spring during planting and continues into early summer, seeing imports generally peaking in April and May for seeding and crop development.
Statistics Canada data shows urea inventories in Western Canada were at their highest levels in a decade as of December, while inventories in Eastern Canada were at their lowest since 2017. A 2022 survey found about 45 per cent of Canadian producers had secured fertilizer supplies by late March, with higher levels in the Prairies than in Eastern Canada.
Shipment delays from the Middle East could push deliveries into May, forcing some farmers to adjust application timing or reduce fertilizer use. Which analysts state could create challenges.
Fertilizer is expected to account for 20 to 25 per cent of total crop production costs in 2026. A 40 per cent increase in nitrogen prices could significantly reduce profit margins, particularly in Western Canada. Farm Credit Canada estimates such an increase could cut average margins for a Saskatchewan wheat and canola rotation in half, while also reducing returns for Ontario corn and soybean producers.
Farm Credit Canada said prolonged conflict in the Middle East could further tighten global fertilizer supplies, particularly if natural gas exports from the region remain constrained.
