How a fertilizer shortage could affect U.S. food prices

A worker spreads fertilizer after planting potatoes at Bluff View Farms on April 24, 2026 in West Jefferson, North Carolina. — A worker spreads fertilizer after planting potatoes at Bluff View Farms on April 24 in West Jefferson, N.C. High fertilizer prices due to the war in Iran have hit farms already dealing with severe weather, tariffs and the high costs of fuel and labor.

Allison Joyce | Getty Images North America

When the war with Iran started, one of the top economic concerns globally was the slowdown of oil shipments. But there was another critical export that got stuck in the region when hostilities began: fertilizer.

Before the war, around one-third of the world's fertilizer transported by sea passed through the Strait of Hormuz, according to UN Trade and Development. The waterway has become a shipping chokepoint in recent months.

With the strait closed, fertilizer shipments from the Persian Gulf slumped and prices rose, affecting countries all around the world that import fertilizer. The war also created a global shortage of natural gas, a key component in nitrogen fertilizer manufacturing.

It caused a massive headache for U.S. farmers who were hit with higher fertilizer prices and limited availability just as they were deciding what to plant for the upcoming growing season.

But the costs borne by farmers don't necessarily get passed on to consumers, and food system experts say they're unlikely to have a major impact on the retail prices of fruit and vegetables.

“Consumers are going to see higher food prices come September to January, once harvests start coming in, and the few months thereafter,” said Chris Barrett, a professor of agricultural economics at Cornell University. “Very little of that is going to be directly attributable to fertilizer.”

That's because food inflation is generally driven by larger factors affecting multiple parts of the food supply chain, such as fewer workers and high fuel costs.

U.S. farmers are rethinking their plans

About one-third of the fertilizer used by U.S. farmers is imported, according to The Fertilizer Institute, an industry trade group. TFI Vice President of Public Affairs Christopher Glen said little of that comes through the Strait of Hormuz.

“But we get impacted in a big way because the fertilizer market is global,” Glen said over email. “Even if those tons from the Mideast aren't coming to the US, they are still tons that have been removed from the market and need to be made up elsewhere. That's where the pressure comes from.”

An American Farm Bureau Federation survey released in April reported that 70 percent of respondents said they couldn't afford all the fertilizer they needed this season.

Some farmers are more vulnerable to price swings than others. Producers of corn and wheat, which rely heavily on fertilizer, can spend around a third of their operating costs on fertilizer alone. Half of the farmers who responded to a survey released by the National Corn Growers Association in early April said they wouldn't apply the full amount of fertilizer to their corn crop this year, due largely to higher costs and limited availability.

Because farmers often secure their fertilizer stores well before a growing season begins, some weren't seriously affected by the price swings created by the war in Iran. (Iran said it closed the Strait of Hormuz shortly after it was attacked by the U.S. and Israel at the end of February. U.S. corn growing season typically begins in April.) But they are worried about the future: corn growers who responded to the survey were twice as concerned about the 2027 corn crop as they were about this year's.

This season, some farmers may opt to plant crops that require less nitrogen fertilizer than corn, such as soy beans, in response to rising costs.

According to USDA data, farmers are expected to plant 95.3 million acres of corn this year, down from 98.8 million acres last year. But the total acreage of soybeans is predicted to rise to 85.4 million acres this year from 81.2 million acres last year.

U.S. grocery prices probably won't take a huge hit

If higher fertilizer costs lead to smaller harvests, that could contribute to modest retail price hikes. A TD Economics analysis estimated that a 2-5 percent production shortfall in North America could grow food inflation by around 0.1-0.5 percentage points in 2027.

But experts say the costs of the fertilizer shortage will be largely shouldered by farmers.

The amount a farmer spends on fertilizer is a small fraction of the total cost to grow food and get it to grocery store shelves. Just 12 cents of every dollar U.S. consumers spend on food goes to farms, while the rest is received by transportation companies, processors, wholesalers and grocery stores, according to the USDA. And the USDA's National Agricultural Statistics Service reported that U.S. farms spent around 7 percent of their budgets on fertilizer, lime and soil conditioners in 2024 (though farmers growing crops more reliant on fertilizer such as corn would spend more).

Additionally, farmers don't have much bargaining power to negotiate with wholesalers for higher crop prices when their operating costs rise, according to Rob Vos, a senior research fellow at the International Food Policy Research Institute. “Those buyers will go to other farmers to try and get it cheaper,” he said.

But there are factors other than the fertilizer crunch that are more likely to cause food prices to jump. Barrett said the global food industry is facing a “really unpleasant layer cake” of pressures, from tariffs and extreme weather to higher prices on labor, fuel and fertilizer.

“No one of those by itself is especially painful,” he said. “But when you add them all up, they become quite painful together.”

In parts of Africa and Asia, the effects of the fertilizer shortage could be far worse. Jorge Moreira da Silva, Executive Director of the UN Office for Project Services, said in April that the reduction of shipments through the Strait of Hormuz may prove “very significant and severe” for poorer countries. Less-developed countries that rely heavily on fertilizer from the Persian Gulf include Sudan, Sri Lanka, Tanzania and Somalia.

The fertilizer industry is recovering — and may adapt in the process

Some fertilizer prices have begun to fall again in recent weeks, after the U.S. and Iran reached a deal to reopen the Strait of Hormuz last month.

The Trump administration has also taken steps to lower fertilizer costs for American farmers. This week, Trump temporarily suspended “countervailing duties” on certain phosphate imports, which are added to some imported goods to cancel out subsidies provided by foreign governments.

Still, it will be a while before the fertilizer sector returns to normal. Vos estimated that it could take weeks or months for fertilizer manufacturing plants to come back online and return to previous production levels. If high prices stick around, that could snarl the plans of U.S. farmers preparing to plant cool-season crops this autumn, he added.

Barrett said the trouble with the fertilizer industry has also gotten farmers thinking about how they can protect themselves from these kinds of supply-chain disruptions in the future and looking for other ways to replenish their soil, such as manure, compost and cover crops.

“Just like we're seeing more people interested in electric vehicles because the price of gasoline and diesel has gone up, you see more farmers interested in other ways of replenishing soil nutrients as the price of fertilizer has gone up,” he said.

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Brandy Hicks

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Can You Create Deductions by Forgiving Debt to Your Own Entities? – Houston Tax Attorneys

Business owners with multiple entities often transfer funds between their companies. These transfers are often accounted for in an inter-company account. In other instances, they may be structured as loans.

When financial difficulties arise, these intercompany loans might be forgiven. If this is the case, can the borrowing entity exclude the forgiveness income while the lending entity claims a bad debt deduction–essentially creating a deduction without corresponding income? The result could be a significant tax deduction with no offsetting income recognition.

The Ninth Circuit’s decision in Kelly v. Commissioner, No. 23-70040 (9th Cir. Jun. 5, 2025) gets into this question involving related entities.

Facts & Procedural History

The taxpayer in this case was an individual. He controlled multiple business entities between 2007 and 2010. He transferred millions of dollars between the entities and characterized the transfers as loans to maintain flexibility in his business operations.

On December 31, 2010, the taxpayer cancelled many of the intercompany loans. The taxpayer reported $145 million of cancellation-of-debt (“COD”) income on his personal return, but excluded it entirely by claiming personal insolvency. Similarly, two of the entities reported COD income of $21 million and $2 million respectively but also excluded these amounts claiming insolvency.

The other side of it involved tax deductions. The taxpayer reported a short-term capital loss of nearly $87 million on his 2010 return, claiming a nonbusiness bad debt write-off for the cancelled loans.

The IRS conducted an audit and, after issuing deficiency notices, the taxpayer contested the adjustments in tax court. Following a nine-day trial, the tax court rejected the taxpayer’s worthless debt deduction theory while accepting most of his other positions. This resulted in income tax deficiencies of more than $5 million dollars for 2010 and $10,123 for 2011. The taxpayer appealed the worthless debt determination to the Ninth Circuit.

Section 166 and the Bad Debt Deduction Framework

Section 166 of the tax code allows taxpayers to deduct bad debts that become worthless during the tax year. This allows taxpayers who lend money and cannot collect tax relief for their economic loss. However, the tax deduction includes safeguards to prevent abuse, particularly in related-party situations.

To claim a nonbusiness bad debt deduction under Section 166, taxpayers have to satisfy three requirements. The debt must be bona fide, representing a genuine creditor-debtor relationship rather than a disguised gift or capital contribution. The taxpayer must have sufficient adjusted tax basis in the debt to support the claimed deduction amount. Most importantly for the Kelly case, the debt must have become “wholly worthless within the taxable year.”

Most disputes involving these rules focus on the worthless element. The requirement helps to ensure that tax loss deductions reflect genuine economic losses rather than paper transactions designed primarily for tax purposes.

The Objective Standard for Worthlessness

Courts apply an objective standard to determine whether debt has become worthless under Section 166. The debt must have zero value, not merely reduced value or partial collectibility. Even if only a modest fraction of the debt remains recoverable, the entire deduction is disallowed because the debt is not “wholly worthless.”

This objective test examines the debtor’s financial condition, available assets, and realistic collection prospects. Relevant factors include the debtor’s income potential, asset base, and whether legal action to collect would be entirely unsuccessful. The creditor’s subjective belief about worthlessness is insufficient–the determination must be based on verifiable facts about the debtor’s inability to pay.

The timing of worthlessness matters because the deduction is only available in the year the debt actually becomes worthless, not when the creditor decides to write it off for business reasons. This prevents taxpayers from timing deductions to optimize their tax benefits rather than reflecting actual economic losses.

Does Debt Discharge Equal Automatic Worthlessness?

The Ninth Circuit considered the question of whether debt cancellation automatically renders debt worthless for tax purposes. This was the argument raised by the taxpayer.

In considering the question, the court distinguished between “discharge” under Section 61(a)(11) and “worthlessness” under Section 166. The court explained that these terms serve different functions in the tax code and are not synonymous.

The court emphasized that discharge merely releases the debtor from the repayment obligation; worthlessness requires objective evidence that the debt has no value and cannot be collected. Simply cancelling debt does not eliminate its prior objective value as a matter of law. According to the court, the creditor must prove through facts and circumstances that the debt became uncollectible–not merely that the creditor chose to forgive it.

This distinction would preclude many taxpayers from getting a tax deduction through strategic debt forgiveness. In theory, without requiring objective proof of worthlessness, any monetary transfer could be structured as a loan and later cancelled to produce illegitimate tax benefits. The court noted that such abuse would be particularly problematic when parties are not dealing at arm’s length and the creditor stands to benefit from the cancellation.

The Takeaway

The Ninth Circuit’s decision in this case can been seen as a bar to circular tax planning strategies that attempt to create worthless debt deductions through strategic debt forgiveness to related entities. The decision reinforces that tax deductions must be grounded in genuine economic substance rather than paper transactions designed primarily to reduce tax liability. Intercompany debt strategies must involve real economic risks and losses, not circular arrangements designed to game the tax system.