If agriculture goes wrong, nothing else will have a chance to go right. – Dr. M.S. Swaminathan
If agriculture goes wrong, nothing else will have a chance to go right.
Food inflation begins outside the grocery aisle with fertilizer, fuel, seed, chemicals, freight, financing and other inputs that farmers need before harvest. Since the start of the Iran war, World Bank Commodities Price Data for fertilizers has surged 44% while the Bloomberg Agriculture Subindex has increased only 9%, creating a widening gap between production costs and agricultural output prices.
Nitrogen fertilizer depends heavily on natural gas, both as a feedstock and as an energy source, and major fertilizer products remain exposed to regions, shipping routes and supply chains disrupted by the conflict with Iran. An estimated one-third of globally traded fertilizer passes through the Strait of Hormuz, including 23% of global ammonia, 34% of urea and nearly 20% of world phosphate. The cost of producing food has risen before agricultural commodity prices have moved enough to compensate farmers.
Farmers make decisions long before consumers see the final price impact. Higher fertilizer prices and lagging crop prices leave fewer attractive choices: accept lower margins, reduce fertilizer application, switch acreage toward less fertilizer-intensive crops or depend more heavily on policy support. Lower fertilizer use can protect cash flow in the current season but reduce yields in future seasons. Acreage shifts can tighten supply in fertilizer-intensive crops and add pressure to prices down the road.
The prices farmers pay for fertilizer, fuel and other necessities can shift quickly, while crop supply adjusts more slowly. Continued disruption from the war could keep fertilizer and energy costs unstable; increase pressure on farm margins; and make food protectionism, domestic supply measures and farmer bailouts more likely.
The National Oceanic and Atmospheric Administration’s latest El Niño-Southern Oscillation update adds another complication. The agency’s Climate Prediction Center estimates an 82% chance that El Niño emerges during May-July 2026 and a 96% chance that it remains in place through the Northern Hemisphere winter. El Niño has historically raised drought risk in Australia and parts of South and Southeast Asia, where wheat, rice, sugar and coffee are key crops, while shifting rainfall toward the U.S.’s southern tier and parts of southern South America.
The global impact of high food prices would be uneven. In the United States, food inflation is painful, visible and politically sensitive, but food carries only about 14% of the Consumer Price Index (CPI) basket. In several large emerging economies, households are more directly exposed: Food accounts for roughly 37% of India’s CPI basket, 34% in Mexico and 30% in China, leaving governments with less room to cushion the blow. A food-price shock can pressure real incomes, currencies, trade balances, budgets and political stability.
Producers are absorbing the pressure first through margins, planting choices and input decisions. Investors should focus on food inflation because once it reaches the CPI basket, grocery prices can influence consumer spending, confidence and perceptions of the economy. By then, part of the story might already have played out on the farm.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
