Natural Gas Prices Surging Globally; What it means for Food Supplies Next Year.
Natural gas reaching 12 year highs ramping up cost pressures on farmers across the world
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The implications for increasing natural gas prices are widespread. While winter heating and electrical generation are the more immediate concerns, this article will explore the secondary effects: our food supplies.
Nitrogen is by far the most critical macronutrient for plant life. It is the essential ingredient for the creation of amino acids; the foundational elements for special proteins enabling organisms to grow. Atmospheric nitrogen (N2) makes up 78% of our atmosphere, but is in an unavailable form for plants to use. Nature has a way around this. Bacteria in the soil and on certain plant root nodules “fix” this otherwise useless nitrogen into bio-ready forms for the plants.
There are limitations to this. Many crops grown by farmers are incapable of fixing their own nitrogen. Crops such as corn are regularly rotated with soybeans. These legumes have root nodules creating a natural symbiotic relationship with rhizobia, or N-fixing microbes. This reduces the nitrogen-depletion in the soil through good practice and as a result, lowers the demand for fertilizer.
Give most crops are not nitrogen self-sufficient, ammonia fertilizer is applied to the soil. This is achieved through the Haber-Bosch manufacturing process. Atmospheric nitrogen is combined with the methane derived from natural gas. The hydrogen in the methane combines with nitrogen to produce ammonia.
Natural gas is the most important ingredient in manufacturing nitrogen fertilizer. Without it, crop yields would suffer immensely. As a result, an increase in natural gas prices inevitably raises the cost inputs for fertilizer. This will deter farmers from planting nitrogen-demanding crops like corn or wheat and substitute soybeans.
The dominos begin to cascade downstream given the US’ heavy reliance on corn as an input for thousands of products. Biofuels like ethanol are produced using corn. US statutes require tens of billions of gallons of ethanol be blended annually into the fuel supplies of the country. The higher cost inputs for farmers ripple throughout the economy.
We may experience yield deterioration due to input constraints. This means less corn. Substitution effects will push farmers to adjust accordingly as to what they end up planting. One thing is for certain, we will all be paying more for less as inflation marches on.
