Conflict sows fertiliser shock

THE impact from reduced availability of fertilisers on the global market as a result of the Middle East conflict could take a while before it feeds into prices for consumer goods like vegetables, meats and staples, as well as the yields of Malaysia’s palm oil sector.

The conflict zone previously supplied about 30% of globally traded fertiliser, but exports have halted due to the closure of the Strait of Hormuz and damage to production assets.

Unlike crude oil, there are no strategic fertiliser reserves to tap into for most countries.

Meanwhile, major fertiliser-producing nations like China have started to curtail exports to preserve buffers for local use.

Despite this, price movements in soft commodities such as corn and soybeans suggest investors are pricing in a quick end to the war, as indicated by US President Donald Trump.

While fertiliser prices such as urea, have risen some 60% to 70% since the conflict began at the end of February, corn and soybean futures have increased only by single digits.

This is due to ample supply, supported by record harvests. Hence, the market looks at today’s warehouses and sees abundance.

These stock buffers help keep prices stable in the short term, but also raise the risk of sharper adjustments later as the buffer begins to unwind.

Unsurprisingly, a local integrated poultry and livestock producer tells StarBiz 7 that his corn and soybean import prices, key raw materials for feed, are only up between RM50 and RM150 per tonne since the war started, mainly due to higher bunker fuel and insurance costs.

However, higher fertiliser prices are expected to affect the next planting cycle.

The northern hemisphere is now entering the spring planting season.

Corn and soybean farmers in the United States typically plant between late April and early May, applying roughly half their fertiliser during this period.

If farmers cut fertiliser use due to higher prices or reduce planting, yields could fall and stock levels tighten, leading to higher prices.

Data show cereal yields can drop by about 40% after a year without fertiliser application.

Local palm oil growers that reduce fertiliser use are likely to see similar impacts on yields over time.

Even if the Strait of Hormuz reopens soon, restarting production and shipping could take months. The planting window will not wait.

A smaller harvest in the next season could drive up feed costs for poultry producers, potentially leading to higher prices for products such as chicken and eggs.

Tighter corn and soybean supplies could also support palm oil prices, particularly as biodiesel mandates rise globally amid energy security concerns linked to the conflict.

Analysts have begun trimming earnings forecasts for local listed poultry companies such as CAB Cakaran Corp Bhd, Leong Hup International Bhd and QL Resources Bhd, citing margin pressure from higher feed costs.

With only about 10,000 ha planted with corn and minimal soybean cultivation, Malaysia’s poultry and livestock industry is highly dependent on imports from markets like the United States and Argentina for feedstock.

And now with no more price controls in place, the man on the street is meanwhile worried that poultry producers may raise retail prices for eggs and chicken, partly due to higher diesel costs.

The real push factor is being sown into the ground even as peace talks continue.