So why has there been such a muted price reaction?
Agriculture runs on a calendar, not a news cycle. Northern Hemisphere spring planting largely used inventory purchased before tensions escalated. However, the next purchasing window occurs in the Southern Hemisphere and begins over the summer. This is when farmers will return to the market for nitrogen inputs. If the Strait remains closed into that period, today’s logistical constraint becomes tomorrow’s economic pain.
This is why the market appears complacent. It is not ignoring the problem – it is assuming the problem goes away. A resolution between the US and Iran is the consensus view and, until that assumption is challenged, the market does not have to deal with the consequences. If the disruption fades quickly, the market’s current indifference will be justified. But, if it persists a little longer, the transmission into crop economics becomes hard to ignore – making agricultural commodities a potentially asymmetric hedge.
In addition, agricultural commodities typically perform well in periods of high and rising inflation, delivering positive real returns in most historical inflationary episodes. In portfolio terms, Ruffer’s 2% exposure to these commodities complements existing inflation and geopolitical hedges, whilst adding diversification through assets driven by different forces – from logistics to weather.
There is one important wild card. China has been restricting urea exports since the end of last year, building up inventory in the process. A decision to re-enter the market at scale could ease supply concerns before the summer planting period. Equally, a resolution to the conflict and a full reopening of the Strait would allow delayed (rather than lost) supply to return quickly as shipping normalises. Finally, agricultural markets remain inherently sensitive to weather and seasonal dynamics, which can amplify or offset the fertiliser shock. The likely return of El Niño into 2026 only reinforces that, with past events associated with meaningful disruption to agricultural output.
At Ruffer, we do not aim to predict how the conflict will evolve from here. We look to own assets that protect the portfolio against unfavourable outcomes. Agricultural exposure offers an unusually asymmetric way of doing that: a hedge that could respond if tensions persist or re escalate, but which starts from a far less demanding base than oil.
