Trump Meets with Farmers as Soaring Fuel, Fertilizer Prices Strain Food Supply Chain

The “Hormuz Surcharge” is finally moving from the gas pump to the grocery aisle.

Industry representatives are warning that unexpected supply chain disruptions and skyrocketing costs stemming from the Iran conflict are causing pain across the food supply chain. President Donald Trump says measures to help farmers will be announced today.

Strait Talk

Life was tough enough for farmers last year, when they suffered a 46% increase in Chapter 12 bankruptcy filings amid tariff disruption. The US announced a $12 billion bailout program in December, and the USDA estimates net farm income this year will be down roughly a quarter from 2022. 

All this was before the United States and Israel attacked Iran in February, which spurred a de facto Iranian blockade of the Strait of Hormuz. With 20% of the world’s oil traversing the strait in normal times, diesel prices are up 42% year-over-year, prompting some farms to reassess their operations and others to worry that struggling farms could be pushed “off the cliff.” On Thursday, Trump’s administration announced it would allow the sale of E15 gasoline, which contains ethanol, to lower prices.

But farmers have more problems than fuel: The Persian Gulf is a transit corridor for 34% of the world’s fertilizer. While the US is a significant producer, it still imports roughly a quarter of fertilizer and 18% of vital nitrogen additives. Midwest farmers told the Des Moines Register that they’re already being quoted fertilizer prices that are up 40% from the fall, and one major food producer is warning its own costs could rise:

• “There are three main components of our business that this could impact,” CFO Mark Hall of US-based pork-producing giant Smithfield Foods told an earnings call this week.
• “First, the direct impact of fuel costs, such as diesel. Second, corn prices, which are tightly correlated to the oil markets. Third, the petroleum-derived supplies that we use, such as resin-based packaging.”

Word from Down Under: It could be worse. Take Australia, which relies almost entirely on imports for the nitrogen fertilizer urea. Michael Hampson, CEO of the farming cooperative Norco, said the best-case scenario for the food supply chain is a six- to 12-month disruption. Unless the Hormuz closure is resolved in two to three weeks, he said, “the fallout for this event is going to make Covid look like a tea party.”