Geopolitics fuel grain market volatility

Key takeaways

• GCC countries have not imported any grain products via the Strait of Hormuz since 28 February; Iran has been importing more at Chabahar, but volumes there cannot offset the loss via the Strait
• Over 40 vessels carrying more than 2 Mt of fertiliser remain bottled in the Middle East Gulf (MEG), with no meaningful export offset via alternative ports
• Urea has been quoted at around $1,000/t in parts of the US; Kpler's current base case corn yield for 2026 is 179 bu/ac
• The soybean-corn new crop futures ratio is at approximately 2.45, up from 2.35 a year ago, supporting a shift in planted acres away from corn
• For China's domestic grain fundamentals, rising stocks, declining sow numbers, and multi-year low hog prices do not support the volumes implied by its $17 billion agricultural trade commitment with the US. So, there is a geopolitical motivation  
• NOAA places El Niño probability at 98% for Q4 2026, threatening Australian wheat yields at a time when planted area may also fall due to higher fertiliser costs

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Grain flows are reshaping across the Middle East

The Strait of Hormuz remains effectively closed for grain trade. Since 28 February, GCC countries have recorded zero grain imports via the Strait. With the exception of one cargo to Iraq, all vessels entering have been unloading at Bandar Imam Khomeini (BIK). Iran had built up a buffer of pre-positioned laden vessels at BIK before the escalation. That buffer has since been exhausted. Now there is just a trickle of imports via the Strait, and rising imports at Chabahar on Iran's coast to the east. Imports there have picked up, but not enough to compensate for the lost Strait volumes. Iran has some near-term leeway with the domestic wheat harvest underway but monthly imports have declined.

On the routing side, most vessels originating from South America destined for Saudi Arabia are moving north to the Mediterranean to access the Red Sea. Also, some cargoes bound for Iran are diverting to transshipment points off the western coast of India, with operators offloading to vessels willing to take on the insurance cost and transit risk of entering the MEG. Caspian coaster activity has ticked up, but volumes are low and offer little offset.

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Fertiliser: A disruption without an offset

Approximately 25% of the world's seaborne nitrogen fertiliser trade originates from the MEG. With Strait crossings minimal, that supply is effectively not moving. Unlike in the grain trade, where stronger import volumes have emerged through East Coast UAE and West Coast Saudi Arabia, there has been no equivalent fertiliser export offset. A brief uptick in phosphorus fertiliser shipments from the Red Sea appeared in April, but May data does not suggest this trend is strengthening. Just over 40 vessels carrying over 2 Mt of fertiliser products remain trapped inside the MEG.

Global fertiliser prices remain elevated. For example, for the middle of May, urea has been quoted at around $1,000/t in parts of the US. This is both a planting story and a yield story that will play out across both hemispheres through the second half of 2026.

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Application rates of nitrogen fertiliser under consideration

The timing of this disruption matters. June through August is a key nitrogen fertiliser application window for several crops across the Northern Hemisphere:

• Corn across the US and Europe is moving through the leaf development stage, where nitrogen uptake has a direct relationship with yield potential
• Rice across much of Asia is approaching tillering, the phase most sensitive to nutrient availability
• Cotton across the southern US, China and India is entering a similarly responsive growth stage

In the Southern Hemisphere, Australian and Argentine wheat and barley crops will begin tillering by August.

The US corn situation illustrates the pressure most clearly. Kpler's current base case yield for 2026 is 179 bu/ac, below the trend line. Our model projects a fertiliser-related yield drag of around two percent at current price levels. Approximately, a one standard deviation fertiliser effect accounts for roughly four percent yield loss while a one standard deviation weather effect is eight percent. Good weather can absorb much of the headwind, but the fertiliser constraint makes reaching last year's yield ceiling structurally harder regardless.

On acreage, the soybean-corn new crop futures ratio at approximately 2.45, up from 2.35 a year ago, already supports higher soybean planting before fertiliser costs are factored in. Incorporating urea prices strengthens that signal further. Kpler estimates approximately one million corn acres shifting into soybeans relative to the USDA's current projection of just over 95 million. The June acreage report, due 30 June, is the first data point to confirm or challenge this. 

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South American corn: Strong Argentine exports but dryness concerns for Brazil

Argentina's corn harvest is progressing well with yield results supporting expectations of sizable production. Recent monthly export volumes are reaching multi-year highs as Argentine origin remains highly competitive on the FOB market, undercutting the US.  

Brazil's picture is more cautious. Kpler currently estimates total 2025/26 Brazilian corn production at approximately 137 Mt. Across a few key-producing states, the safrinha corn crop is experiencing water stress, with the two-week forecast offering little relief. With the safrinha crop accounting for the majority of Brazil’s export campaign, pressure on production could see competitiveness impacted. Though, Brazilian corn exports will remain subdued until soybean loadings offer some relief to elevator capacity later in the year.

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China: political commitment, not commercial demand

Following the US-China summit, China has reported it will purchase $17 bn of US agricultural products, excluding soybeans, in 2026 (prorated), 2027, and 2028. 

With soybeans excluded from the deal, the remaining commitment from June onwards falls heavily on other categories. Running a scenario with moderate allocations to consumer oriented and intermediate agricultural goods, China would need to purchase roughly $2 bn of US corn in 2026, approximately 8 Mt factoring a modest price rise from today’s level.

China has not bought US corn in meaningful volume for the past two and a half years. US corn was the cheapest available origin for around 18 months until recently, and China did not buy. Domestic fundamentals explain why: grain stocks have grown consistently, the breeding sow population has been in decline, hog prices are at multi-year lows, and Australian barley re-entering the market post-ban provides a commercially attractive feed substitute. The demand for US corn is simply not there.

Any purchases at this scale would be a political decision. The market will closely monitor US export sales to China. But trade matrix adjustments mean 8 Mt of Chinese purchases would not reduce US ending stocks by an equivalent amount. Global corn balance sheets are better positioned than at any point in the past decade.

The next meeting between President Trump and President Xi is expected to be in September. Soybean prices are unlikely to find meaningful support from the trade before then.

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El Niño: Emergence probabilities increase

NOAA's latest projections place El Niño probability at 98% for Q4 2026, with the strength of the event also revised upwards. For Australian wheat, the implications are significant. El Niño historically causes dry conditions across Eastern Australia's key production regions during the critical grain-fill period. Our model projects Australian wheat yield below trend for the 2026 harvest under an ENSO value of 1.5. Add a fertiliser-driven reduction in planted area, and Australian wheat production for 2026 faces a double constraint. India's monsoon represents a second-order risk if conditions persist, though our current assessment is not flagging significant concern there.

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Key watchpoints

Global fertiliser supply remains constrained. Several crops across both hemispheres are transitioning to development stages where nitrogen availability is key for yield potential. Though growers may be covered for the short term, longer term, coverage for the 2026/27 crops is likely more limited. Therefore, yield implications of higher fertiliser prices may be more widely seen for the 2027 crops unless fertiliser prices weaken in response to a return of historical fertiliser trade via the Strait of Hormuz.

The USDA’s June acreage report on 30 June is the next key market event for US corn and soybeans. Brazil's safrinha corn crop is experiencing some water stress with limited near-term rainfall. El Niño is becoming a base case.

On the trade side, a new crop corn sale to China would be a significant market signal, so markets will eye US flash sales and weekly sales reports. There is a strong political motivation behind the $17 bn commitment rather than a supply-and-demand catalyst.