Fertilizer shortages and global wheat crop production

I am Stephen Davis, senior market strategist at Walsh Trading, Inc., Chicago, Illinois. You can reach me at 312-878-2391.

Oil is not the only commodity affected by the blockade of the Strait of Hormuz in the Middle East. The export of ingredients needed for fertilizer - urea, ammonia and phosphates – has been halted from the Persian Gulf, which represents up to 30% of the international trade. Russia, which controls up to ‌40% of the global trade in ammonium nitrate, has stopped exports of it until April 21 to ensure it has enough  supply for its ​spring planting season.

This potential shortage of fertilizer could to lead to less wheat production in many parts of the world for two reasons. Wheat requires more fertilizer than many other crops so using less fertilizer than required leads to lower crop yields. The other reason is that higher fertilizer prices or a lack of sufficient fertilizer could cause farmers to plant less fertilizer-intensive crops.

In Australia, surging prices of fertilizer has farmers considering a shift from wheat to other crops such as barley, lentils and canola. In the European Union, the Joint Research Centre JRC MARS (Monitoring Agricultural Resources) bulletin forecast the soft wheat yield in 2026 to be five percent lower than last year. Meanwhile, the ongoing war in Ukraine has severely disrupted wheat production for this country that was once a leading wheat exporter. In the United States, the American Farm Bureau Federation says as spring planting season arrives, the disruption of supplies is yet another stressor on farmers who are are already being squeezed as input costs remain historically high while prices for many commodities have fallen significantly.

As we can see on the chart below, in my opinion, all of this leads to good support for U.S. wheat prices. 

An option trade strategy is to buy July 2026 Chicago Wheat 6.00/7.00 call spread. The cost of this spread today is $1,250.00 per contract. The maximum profit potential is $5,000.00 per contract.

To discuss trading strategies, contact me anytime. Have an excellent day and healthy, prosperous new year. 

Stephen Davis
Senior Market Strategist 
Walsh Trading

Direct 312 878 2391 
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sdavis@walshtrading.com  
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