Enjoy cheap gas for now

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Pumping gas
Pumping gas. (Metro Creative Services photo)

Ten days ago when I filled the tank on Squeeze’s car at the BP in Howland Center for 0.899 cents a gallon, I thought I would remember that for a long time. I took a picture of the price sign and sent it to my son in Tennessee — I thought we had hit the bottom for prices.

Sure enough, President Donald Trump jawboned with the Saudis, who precipitated this price war. He leaned on the Mexicans, who were resisting dropping production. As a result, we had an announcement that the OPEC+ nations (OPEC plus significant others) had agreed to big production cuts. And yet yesterday, I was back at that BP station and paid 0.859 cents, 4 cents less. I remember paying $4.39 not that long ago.

I like the cheap gas. The trouble is, cheap gas is a terrible thing overall because everything affects everything else in this global economy.

Cheap corn

Cheap gas is one side of the picture right now, but let’s look at the other. If you are a farmer, cheap gas means cheap diesel for tractors and trucks and cheap propane for drying grain. It also means cheap corn.

Farmers are better off paying more for petroleum products if it means that more corn goes into ethanol, or corn goes into ethanol for a higher price. The ethanol plant is selling to the refineries to blend into gasoline. If the gasoline gets cheap, then ethanol gets cheap, and corn gets cheap. Pretty direct relationship from cheap gas to cheap corn.

Ever since we fired up the ethanol business to provide an additive to gasoline as a cheap octane enhancement and as an oxidizer to meet requirements of the Clean Air Act, the acres of corn boomed. For a time, the price of corn boomed.

Eventually we produced enough corn to drop the price back to reality. In the process, we ran the costs of rationed crop ingredients up to new levels. In the process of adjustments, we raised net return per bushel a bit, but at the cost of much larger costs per acre.

A new low

On April 15, May corn futures hit a new low again. This time we touched 3.17-3/4 a bushel. On April 17, West Texas Intermediate Crude oil hit a new low of $17.31 per barrel. So, we don’t want to sell corn, but we may want to fill our tanks and see what we can contract ahead for petroleum needs.

What we should not do is be excited. Remember cheap gas and diesel is cheap corn. For those who are not farmers, there are bigger reason why we should fear cheap gas prices.

Just recently we became energy surplus in this country. We now export more energy than we import. We are now not liable to see the gas scares of the 70s, when OPEC put the screws on us. They produced a large part of the oil we needed, and they decided to make money on it.

The energy surplus in this country came as a result of political changes and technology. The administrations that kept us from drilling on some public grounds and in some offshore areas gave way to an administration that believed we should “Drill, baby, drill!”

The oil industry perfected ways of extracting oil from the world’s greatest shale deposits in Pennsylvania, Ohio and North Dakota. With cheap gas, the shale rigs are being stacked out, tens of thousands of petroleum workers are being laid off, and we are slowly losing our national security.

We need $55 oil to keep our oil coming, and that means $2 gas, but maybe $4 corn. I say maybe, because we still have a market weighed down with slow livestock movement and overestimated 2019-2020 production.

The president understands that cheap oil is just as corrosive to our economic health as expensive oil is. In 2008, we had $140 oil. We can live, and safely, with $55 or $60, even if it has been nice to have cheap gas for a while.

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Marlin Clark is an associate of Russell Consulting Group, with a local office in Williamsfield, Ohio. Comments are welcome at 440-363-1803.

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