There isn't an actual relationship between oil and wheat prices, but in Nebraska, they're both headed down in lockstep.
William Sydow, director of the Nebraska Oil & Gas Conservation Commission, Sidney, Neb., said that, out of curiosity, the commission examined trends in oil and agricultural prices together this fall, "since both of the industries are in serious peril.
"The analysis found an incredible relationship between the prices of the two products. The price of oil has responded in a similar fashion to wheat prices, but the oil price responds 6 months later."
Price correlation
Sydow said, "Mathematical analyses of the cash prices found that a linear relationship could be established. Using the linear relationship and the wheat price, the price of oil was calculated. The match of the historic and calculated oil prices is uncanny."If the wheat and oil prices continue to respond in the same manner, this analysis indicates that the average price of oil could dip to $6.38/bbl" in early 1999, said Sydow.
"This price has not been experienced since the early 1970s and would be as catastrophic to the oil industry as wheat prices have been to the farmers.
"The oil industry in Nebraska has never fully recovered from the price collapse of 1985 and 1986. Further price declines would devastate an already crippled oil industry."
He noted Nebraska oil producers and farmers have two things in common: they both produce essential commodities but have no control over product prices.
Sydow said, "Congress has responded to the farm crisis and provided assistance to wheat producers. The independent oil producers of Nebraska, and the nation, are in dire need of similar assistance at this critical time."
In Washington, D.C., Agriculture Sec. Dan Glickman recently said U.S. farmers will need higher federal price supports in 1999.
Congress voted farmers a record $6 billion for emergency disaster relief and "market loss" payments in 1998. That was in addition to $7 billion from regular Agriculture Department aid programs.
Copyright 1998 Oil & Gas Journal. All Rights Reserved.
