The 2026 Strait of Hormuz closure drove fertilizer prices sharply higher, prompting a broad federal response focused on supply-side capacity, logistics, and producer income support. This paper examines the demand-side channel that has received less policy attention: the margin at which corn producers may reduce nitrogen fertilizer application rates in response to elevated input prices. The agronomic literature suggests reductions of 12 to 16 percent are feasible without measurable expected yield loss; this paper examines a more conservative 5 percent scenario. Two features of the Federal Crop Insurance Program, Good Farming Practices standards and the multi-year Actual Production History calculation, may create marginal friction for producers contemplating reduction under shock-price conditions, though neither is likely determinative relative to agronomic and weather considerations. Simulation results suggest a 5 percent reduction across insured corn acres would conserve roughly 300, 000 short tons of nitrogen, raise federal indemnities by approximately 0. 10 billion, and leave approved insurance provider returns above the Standard Reinsurance Agreement target. The paper closes by asking whether existing FCIP mechanisms, GFP interpretation guidance, yield-modification provisions, and AIP make-whole arrangements, warrant further examination in the current price environment.
Tsiboe et al. (Thu,) studied this question.