Goldman Sachs warns that a shortage of fertilizers due to the Hormuz could increase grain prices.

Goldman?Sachs stated in a report published on Tuesday that disruptions to the nitrogen fertilizer supply via the Strait?of Hormuz may reduce global grain yields?and change planting decisions. This could lead to a rise in grain prices.

The report stated that a shortage of nitrogen fertilizer may lead to a lower grain yield through suboptimal or delayed nitrogen application, and encourage farmers planting less fertiliser-intensive crops like soybeans.

According to The Fertilizer Institute, in the U.S. where farmers can import as much as 50% of urea fertilizer some years, spring planting may be hampered by a supply that is around 25% below normal levels.

Goldman reported that the price of nitrogen fertilizer has risen by 40% since the start of the conflict. Goldman said that a quarter of the global nitrogen trade, and about 20% of the LNG shipments - which are key to nitrogen production - transit through the Strait of Hormuz. This has been blocked since the start of the Iran war.

The bank warned that supply disruptions can reduce availability and increase production cost elsewhere.

Goldman said that "spare capacity for fertilizer production outside the Middle East appears limited." He cited production constraints in Russia which accounts for about 15% of global nitrate?fertilizer?exports, due to attacks on facilities and export limitations, as well as a likely extension of China's fertilizer export ban beyond August.

Bank of America said that while U.S. farmers are relatively protected for the moment - due to advance procurement before planting season - disruptions in Europe, Australia, and the Southern Hemisphere may bolster demand for U.S. grains exports, which could increase U.S. prices.

The lack of U.S. Strategic Reserves or rapid domestic production scaleability could also affect the availability in April. Reporting by Anmol Chaubey, Bengaluru. Editing by Cynthia Osterman

(source: Reuters)