Americans could face a significant increase in grocery prices by early 2027, as a confluence of fertilizer shortages and a potentially powerful El Niño threatens global food supplies, according to a new analysis by JPMorgan.
The financial institution's report forecasts a potential five percent climb in global food costs during the first half of 2027. Dr. Sarah Kapnick, Global Head of Climate Advisory for JPMorgan, highlighted the convergence of these two global issues as an example of climate acting as a "threat multiplier."
One primary concern is the disruption in fertilizer production and export, particularly urea, a critical nitrogen-based fertilizer. The Persian Gulf region supplies over 36 percent of the world's imported urea. Ongoing conflict in the region has reportedly slowed production, while disruptions through the Strait of Hormuz have restricted exports and driven up prices. This shortage could begin impacting harvests in the coming months, affecting crops like corn, wheat, and rice.
Nitrogen fertilizer is vital for major crops such as corn, wheat, and rice, historically accounting for significant portions of their production costs. Urea is manufactured using natural gas, and its application window around planting time is narrow, making timely delivery crucial. Unlike oil, nitrogen fertilizer does not have widespread strategic reserves due to its instability, leaving farmers with limited options if shipments are delayed: pay higher prices, use less fertilizer and accept lower yields, or switch crops.
Parallel to the fertilizer issue, the potential for a powerful El Niño weather pattern could further exacerbate the situation. El Niño, characterized by unusually warm waters in the equatorial Pacific, can alter global weather patterns, leading to disruptions such as droughts, floods, and extreme heat in key agricultural regions. Tropical producers, including Brazil and India, are particularly vulnerable, as these areas are already reliant on Persian Gulf fertilizer and are historically susceptible to El Niño-induced crop losses.
While the United States might not experience the most direct impacts, American consumers could still face higher food prices as global harvests diminish. JPMorgan estimates that fertilizer production could take one to four years to return to full capacity, with some damaged natural gas facilities requiring three to five years to recover. The dependency on natural gas infrastructure for fertilizer plants creates an additional bottleneck.
Historically, El Niño events have been linked to a decline in agricultural production in tropical regions. Most forecasts indicate the development of El Niño, with some projections suggesting an extreme "Super El Niño." The precise impact will depend on the strength of the event, local weather conditions, and farmers' ability to adapt.
JPMorgan cautioned that a combination of planting delays, prolonged fertilizer disruptions, and El Niño-driven crop losses could escalate from an energy and shipping crisis into a more enduring food price shock. While favorable weather or increased production elsewhere could mitigate some effects, the underlying vulnerabilities present a significant risk to global food security and consumer costs.
