As Commodity Prices Face Pressure and Oil Stays High, Will Farmers Embrace Natural Gas?

2012 promises to be a difficult year for farmers as an estimated 4.8% increase in U.S. corn production, coupled with increased planting of the crop worldwide, puts downward pressure on prices. Corn, which has doubled in the past two years due to demand for cattle feed, is expected to drop by 30% to $4.035/bushel next year in Chicago trading. The record U.S. wheat harvest which is also projected next year should depress wheat prices as well, according to a Bloomberg article.

But oil prices are expected to remain high. ¬†Barclay’s senior economist Alia Moubayed said that the Saudis need $91 oil as a “break even point” in an interview on Bloomberg’s “Surveillance” yesterday. Social unrest swept the Middle East in 2011, and the Saudi government has attempted to quell dissent by promising increased social benefits. The Saudis need higher oil prices to keep those promises. Saudi Arabia’s massive production capacity means that they are a longtime swing producer who can influence the world oil price by simply increasing or decreasing production. U.S. oil producers also need $80 oil to stay profitable. Below $80 they begin slowing drilling and decreasing production.

This combination of higher input costs and lower grain prices, coupled with the recent price boom in farmland, promises to squeeze profits for farmers in 2012. This has many farmers looking for ways to cut costs.

Natural gas may be part of the answer. “Though there are costs to converting diesel powered machinery to run on a diesel/natural gas blend, a 20-30% savings in diesel fuel promises a quick return on investment for high volume diesel users.” said C&E Clean Energy Solution’s Brian Carpenter. Continue reading