You wouldn't know it, but natural gas prices affect food prices

Last week the St. Petersburg Times, well regarded as probably the best newspaper in the state of Florida, ran an article on the increasing price of food around the world. Frong page and above the fold, the article tried to discuss some of the underlying causes of the increase BESIDES the increase in demand for grains caused by biofuels. It was a decent article until the last section when the author totally blew a crucial fact.

I suggest you read, and then read my follow up email to the journalist. I may have been a tad harsh on him, but it seems like a journalist for a major newspaper should do a little more complete research rather than just draw conclusions from his assumptions.

"Instead of biofuel, other global trends starve Haiti"
http://www.tampabay.com/news/world/article465408.ece


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Mr. Adams,

I am glad you went indepth on some of the many reasons for rising food prices, but I feel like you REALLY dropped the ball on a huge component of the increase. You posit a strong correlation between increased corn yields and increased fertilizer costs (168% since 2000).

My first thought was.."well, that's is bad logic" An average reader reading your column can even see the fallacy given what you told them: more corn, less soy and rice, Did total acres in production go up or does corn use more fertilizer than soy and rice per acre?

Then I remember something in a college class call "Conservation of Natural Resources" The basic idea (with some rough stats plugged in from quick research): industrial fertilizers are produced with huge quanties of AMMONIA. To create (afix nitrogen molecules) AMMONIA, massive amounts of NATURAL GAS are used. Upwards of 90% of the cost of AMMONIA is the NATURAL GAS used to afix nitrogen. US natural gas wellhead prices: Jan 2000=$2.6/Kcubicfeet, Jan 2008=$6.99. Price difference=$4.39 Price Difference as ratio of Original Cost: 4.39/2.6= 1.69, as a percentage increase that is 169%.
http://www.ipm.iastate.edu/ipm/icm/2003/4-14-2003/natgasn.html
http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm

Those are rough numbers just on wellhead price, not wholesale, import, commerical or industrial delivery, but isn't that a great coincidence?

I am no agricultural economist, but I am going to bet the farm on this one: The greatest SINGLE cost behind fertilizer increase is the increase in the price of natural gas. AWESOME ARTICLE! Besides dropping the ball on this one. Feel free to call me tonight or tomorrow early if you want to real quick chat. Or call an agricultural economist from some university. I am sure they have those, right?
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