CROPS

In a world where energy is most certain to come up in virtually any conversation, as well as any political speech, we all hang on sound-bites about crude oil. Every time the price of "black gold, Texas tea" rises a few dollars on the global market, we all get a new tax increase at the gasoline pump. At least it feels like a tax increase. So every day we all worry about what happens in lands far away where the stuff is pumped out of a hole in the ground and a nearly inconceivable amount of money flows back down the hole.

One year ago, the price of Texas sweet light (low sulfur) crude oil was about $102.60 per barrel. On Monday evening the nearest futures price was $106.79, but during a period of global economic fears last October, just five months ago, crude hit a low of about $75 per barrel.

The curious thing is that the trend for natural gas today is almost directly opposite that of crude oil. Last spring, wholesale natural gas prices were trading around $4.23 per million Btu (many homes in the U.S. use about 30 million Btu per month for heat). Today wholesale natural gas is about $2.30. Natural gas is now at its lowest price in 10 years. In the spring of 2002, on the heels of the implosion of Enron Corp, natural gas fell from the then-ridiculous level of $9.92 back to the "normal" levels between $1.85 and $3, where it is today, although it has traded as high as $15.65 in the years between.

Natural gas has a direct effect on the profitability of wheat producers. Anhydrous ammonia as fertilizer is a big part of the reason for high productivity from Pacific Northwest wheat farms and a serious line item in the wheat production cost budget. Ninety percent of the cost in production of this key ag input is natural gas, at a roughly 30 to 1 cost ratio, so 30 times the current natural gas price will be very close to the cost of fertilizer production. This means natural gas down, fertilizer down, and more money in the valley. Right now, there is no flame under the natural gas price.

The demand for natural gas overall has been very stable for a long time, but now, sponsored by high crude prices, there are obvious economic drivers at work pushing natural gas solutions to big energy market problems.

Much is being said for power generation, freight transportation, pollution rules and even export marketing opportunities all pointing at natural gas.

There is heavy political machinery also on the move toward natural gas features and benefits. But even with all the sales talk from T. Boone Pickens (natural gas hero) and various talking heads, the price charts say "ho hum." Natural gas is very cheap, but when the trend changes this story could get interesting. Even the suggestion of a ban on fracking could have a dramatic effect. This is one to watch closely.

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