reuters.com Mon March 3, 2003 04:03 PM ET By Mark Wilkinson

WASHINGTON, March 3 (Reuters) - The rise in heating oil and gasoline prices on war fears and frigid weather may have made many American consumers frown, but economists say the climb is not yet sharp enough to crimp spending significantly.

Nor is the impact on the broader economy from the recent rise likely to be too harsh, barring a prolonged and messy war with Iraq.

The White House last week said President George W. Bush was "greatly" concerned about the price jump, and some on Capitol Hill fretted that higher prices will be a significant drag on economic growth.

"Our economy is driven by what we spend," Republican Rep. John Peterson said. "When we pay triple for home heating, we don't have as much consumer goods to buy."

But James Glassman, senior economist at JP Morgan, said higher prices will do little more than shift growth from the first to the second half of the year.

"It will be a bit of a drag on the economy in the first half of the year, but it will only push that lost growth into the second," he said.

While the oil price spikes in the 1970s took a sharp toll on the U.S. economy, analysts believe rising costs should only have very limited effects on consumers this year because the economy is less reliant on oil and rising costs are less likely to creep into broad inflation.

"Over the past fifteen years, oil prices have had very little impact on the overall economy because they don't have a dramatic influence on the cost structure of businesses," Tim O'Neill, chief economist at Bank of Montreal/Harris Bank said.

However, he added: "A rise in prices will directly affect the (consumer's) pocket book." O'Neill said the rise should not so far be enough to badly hurt spending.

While utility prices have pushed the Consumer Price Index -- the broadest gauge of U.S. inflation -- slightly higher, the core CPI, which excludes volatile energy and food prices, has remained very tame, soothing recent inflation fears.

A BAD JANUARY

Energy prices jumped in January and crude oil futures approaching $40 a barrel last week, the highest level since the Gulf War. The spike was spurred by fears of a looming war with Iraq and worker strikes in Venezuela, the world's fifth-largest oil producer.

Gasoline prices last month jumped to $1.46 per gallon, almost one-third higher than in January 2002, and are expected to rise another 20 percent by the spring, according to the Department of Energy's Energy Information Administration.

Low natural gas inventories pushed up prices, and the cold spell that took the Northeast by surprise this month pushed heating oil costs up.

Dave Costello, an economist at EIA, estimated that while American households spent $600 to $650 on average on natural gas during the winter of 2001-2002, this year's cost will be about $150 higher.

The hardest hit, however, will be those consumers who last year paid on average $640 for heating oil and will have to dish out close to $1,000 this winter.

"It won't be the worst season," Costello however said. "(Consumers) will make adjustments."

Since today's consumers drive more energy-efficient cars, live in energy efficient homes and can choose to travel less or take public transportation to cut down on energy spending, the effects of higher energy costs will be limited, O'Neill said.

Economists believe that a each $10 increase in the price of crude oil could shave off as much as 0.5 percent off gross domestic product.

Bank of Montreal's O'Neill believes, however, that high energy prices would only seriously hurt the economy were they to be sustained over a year or more.

"It's not so much about how high prices go, but how long they stay there," he said.

www.sunspot.net By Bob Davis and Susan Warren The Wall Street Journal Originally published March 3, 2003

Spending is down, gas prices are up -- as uncertainty over a pending conflict with Iraq continues to grip the nation

PITTSBURGH -- Nova Chemicals Inc. is spending about $5 million on the engineering drawings it needs to expand its petrochemical plant in Bayport, Texas.

But Nova is waiting until summer before deciding if it will spend $40 million more to overhaul the plant. By then, Nova figures, it will better know how a U.S. war in Iraq could affect its future.

In one scenario, a long, bitter war sends energy prices skyward and slashes demand for Nova's chemicals, made with oil and natural gas. The more benign possibility is a short, decisive war that sends oil prices plummeting. That could be a boon for Nova, but only if it isn't stuck with high-priced inventory. "We won't get a real spurt in the economy until we see Iraq resolved," said Jeffrey Lipton, chief executive of Nova, which has about $3 billion in annual sales.

Even before the U.S. launches a single cruise missile into Baghdad, war is taking a toll on the U.S. economy. The stock market continues to swoon, as businesses delay investments and consumers grow rattled. The uncertainty and nervousness probably won't dissipate until a war begins or Saddam Hussein flees, so companies are watching and waiting rather than spending and hiring.

The start of hostilities may be less harmful to the economy than the threat of them.

Every month, the Federal Reserve surveys companies around the country. In January, New England insurance companies, Texas high-tech manufacturers and airlines and Southeastern bankers said war worries were stalling their businesses. Later last month, at a World Economic Forum session in Switzerland, top officials of Nissan Motor Co. and Hewlett-Packard Co. said they are scaling back their projections of industry sales because of the war threat.

After a third-quarter spurt, the U.S. economy, at best, barely grew in the fourth quarter. The prospect of war is clouding consensus forecasts of 3 percent growth this year.

Concerns that oil supplies may be disrupted are adding $5 a barrel to oil prices, said Robert Ebel, an energy analyst at the Center for Strategic and International Studies in Washington.

The oil "war premium" acts like a tax that diverts money from other uses and shaves about 0.25 of a percentage point off growth. Economy.com, a West Chester, Pa., economic forecaster, calculates that business investment is about $50 billion a year less than its model of the economy would predict, given the current pace of growth.

It attributes the gap to corporate war worries.

That reduces growth by another 0.5 of a percentage point, bringing the total war-fear costs to 0.75 of a percentage point, or $75 billion less in goods and services and 900,000 fewer jobs, Economy.com said.

President Bush says the economic costs of uncertainty won't affect his war plans. "We don't risk lives with an eye on the stock market," Bush recently told a group of economists invited to the White House, according to several attendees.

Nova Chemicals operates in an industry where geopolitical risks play a large role in strategic planning. Oil and natural gas, whose prices are buffeted by political events, are the industry's key building blocks. Chemical makers must gauge long-term economic and political trends before deciding whether to build plants, which cost hundreds of millions of dollars and take years to complete.

Since the Sept. 11 attacks, chemical companies have tightened security at their plants and made contingency plans to deal with transportation and supply problems that could stem from a possible future attack.

"Until we see some resolution of the Iraq situation, it's going to be hard to have a healthy recovery," says Charles Holliday Jr., chief executive of DuPont Co., the chemical-industry giant based in Wilmington, Del.

For decades, Nova has been shaped by political events beyond its control, sometimes with dramatic results. Nova makes tiny beads of plastic, which manufacturers melt and turn into television casings, packaging material, automobile dashboards, toys and garbage bags, as well as some other chemical products.

Launched in Alberta, Canada, as a natural-gas pipeline firm in 1954, Nova added a chemical business in the 1970s under pressure from Alberta politicians, who dreamed of making the energy-rich province into a kind of Saudi Arabia of the North. In 1998, the chemical company was spun off as a separate entity as a financial crisis swept across Asia and Russia, and demand for imported chemicals vanished.

Over the next two years, Nova spent about $1 billion acquiring U.S. chemical operations and expanded those facilities in anticipation of a market rebound. In 2000, Nova moved its headquarters to Pittsburgh in a bid to raise its profile on Wall Street. The next year, Nova invited analysts to hear the company's prediction that profits would soar the following two years. The date Nova chose for the conference: Sept. 11, 2001.

Nova's business sank deeply into the red at the end of 2001, as orders evaporated, and the company posted a $98 million loss in the last quarter of the year. Lipton, the company's chief executive, went on the road to assure the company's seven major banks that Nova wouldn't go broke.

For the first nine months of 2002, Nova's losses moderated somewhat, but it still reported a $64 million loss on $2.25 billion in revenue. The company reports its fourth-quarter results today.

Now, once again, Nova thinks it is poised for a turnaround -- but only if the U.S. economy strengthens. Customers' inventories are so low that orders are bound to pick up, Nova managers reason. And investment in new chemical plants has been so sluggish recently that supply could be tight if new orders materialize, letting Nova boost prices and improve its profit margin.

But a war could change the economic outlook in ways Nova hasn't figured.

After Iraq invaded Kuwait in August 1990, and the U.S. gathered forces in Saudi Arabia in preparation for battle, oil prices soared. Nova managers huddled regularly to try to predict the direction of oil prices. At one meeting, 28 of the 30 managers were convinced oil prices would slide to $20 after the U.S. attacked, said Rick Henson, a Nova vice president.

The prediction turned out to be right, but the company didn't have a hedging operation in place at the time to take advantage of the insight. Saddled with higher-priced crude, Nova's chemical business earned only $8 million, before taxes, in 1991. The following year, with Iraq out of Kuwait, Nova earnings increased tenfold.

Early last fall, as U.S. war threats over Iraq were escalating, company executives feared, once again, they weren't protecting themselves adequately against wild swings in energy prices. Malcolm Turner, a Nova political analyst, put together a memo mostly examining how different scenarios -- an assassination of Saddam Hussein, an Israel-Palestinian ceasefire -- could drive energy prices lower, as they had following the start of the Persian Gulf War.

But since writing his first memo, the analyst -- who lives in Calgary, Alberta -- has become much more convinced that the U.S. will be caught in a lengthy war in Iraq, pushing prices higher for an extended period.

"Saddam Hussein isn't talking like a person who capitulates easy," says Mr. Turner, who figures the Iraqi leader would try to destroy Iraq's oil fields, as he did Kuwait's in 1991. He also believes that opposition to the war will grow rapidly in the U.S., which could damp consumer confidence and spending.

His pessimism may be a product of his Canadian upbringing and outlook, he says, which many Nova executives share. "The relationship between the U.S. and Canada shapes your view," said Turner, 52, who came of age during the Vietnam era. "If you look what happened to the U.S. in Vietnam and Iran, it points to indications of a messier war" than many Americans expect.

Turner's thinking has become central to Nova's hedging strategies. The company buys options covering the future purchase and sale of oil and natural gas, to keep costs below $30 a barrel, rather than the $33 a barrel that oil has been trading at lately. From Nova offices in Sarnia, Ontario, and Calgary, two full-time traders watch several computer terminals to track energy markets, news and Turner's frequent memos.

After digesting the information, the traders make recommendations for trading activities to the "decision board," which is made up of eight raw-materials managers and executives, who have the final say over hedging activities.

Nova's hedging specialists have put together different trading strategies, depending on how events unfold in the Middle East, including the start of an Iraq war, or Hussein fleeing Iraq. Based on Turner's analysis in the fall, the release of oil from the U.S. Strategic Petroleum Reserve would be an early signal that war is imminent, and prices likely would fall, stabilizing around $25.

But Hussein's exile would have a less-dramatic effect, reducing oil prices by a dollar or two -- still leaving plenty of uncertainty in the market.

Every week, a dozen or so Nova managers examine whether crude prices are cutting into Nova's profits. Margins are so narrow that Nova calculates that wringing a single penny of extra profit out of each of the 14 billion pounds of chemicals and plastics it sells in a year can translate to $90 million in after-tax earnings.

But the managers regularly have underestimated the oil market's skittishness. Unexpected political turmoil in Venezuela, for instance, has helped push oil prices to levels about 30 percent higher than Nova managers had forecast back in October. Nova has raised prices several times since then to try to avoid deeper losses.

"Are you saying we should prepare for costs to continue to climb?" a Nova manager asked, by telephone hook-up, during a recent pricing meeting in a Toronto suburb. Exasperated, John Eade, a production planner, shouted into the speaker phone: "Yes. Climb. C-L-I-M-B! -- the wrong way."

Lipton, Nova's CEO, has a theory that prolonged turmoil in the Middle East actually benefits the company, since Nova's competitors in Saudi Arabia and Iran won't be able to attract investment to expand capacity, while Nova isn't hindered. Nova's natural gas comes from Alberta, one of the cheapest and most reliable sources of energy outside the Middle East, giving the company what it calls an "Alberta advantage."

But the company hasn't acted on the theory, indicating that the health of the U.S. economy, more than a fractured Middle East, is key to Nova's business prospects. Indeed, the company is waiting for the confrontation over Iraq to end before boosting investment plans. Nova sells exclusively to manufacturers, who are also looking for signs of an economic upturn.

"Our customers have to feel confident about the future" before they ramp up orders, Lipton said. "That means getting beyond a war in Iraq."

As Nova waits, it conserves cash. Between 1998 and 2000, Nova averaged $475 million a year in capital spending. Last year, as war worries mounted, its capital spending shrank to $70 million, about half the level the company says is necessary to sustain production at 2000 levels.

Among the shelved expansions: constructing a series of warehouses in the U.S. to store output from Nova's Canadian plants in case the U.S. shuts down the border as it did after the Sept. 11 attacks. Over the last two years, Nova has reduced its work force by about 13 percent to 4,200. The company recently ended an informal hiring freeze.

This year, Nova again is planning to spend only $70 million. But it may decide to double that amount if the war clouds clear. Along with the $40 million expansion at Bayport, Texas, Nova is considering another $50 million in oil and gas projects, including expansion of the company's railcar system, building new storage tanks and improving pipelines.

At Sarnia, across the river from Michigan, Nova is looking at a major expansion, which could cost $150 million to $200 million. No decision is expected until the summer, when the company should have a better fix on whether a U.S. upturn is likely. A pipeline under the St. Clair river connects the Sarnia plant to a Michigan plastics maker that sells plastic padding for dashboards and other interior parts to U.S. car makers.

Turner, Nova's political analyst, said he's rethinking one of the scenarios that could affect Nova's business. He's no longer sure that if Saddam Hussein fled Iraq, oil prices would decline as the crisis receded. Maybe the U.S. would still invade, he reasoned, to make sure the new regime was disarmed, thus keeping oil prices high.

Turner recently addressed about 30 Nova managers gathered in Sarnia to examine the company's strategy. "I think it's fair to say we're actually in the first energy crisis of the 21st century," he told his colleagues.

www.accessatlanta.com

By MICHAEL E. KANELL The Atlanta Journal-Constitution

The nation's economy is on the cusp once again of an energy crisis, a financial penalty that has repeatedly triggered recessions.

To be sure, the danger could dissipate within weeks, making energy instability a mere footnote to a smooth and satisfying resolution to tension in the Middle East and upheaval in Venezuela.

Or it may be that the Energy Crisis of 2003 has already begun. Certainly money has already been snatched from American pockets and shipped overseas, threatening an already fragile economic recovery.

Consumers are spending about $50 billion more in annual energy bills than a year ago, said Mark Zandi, chief economist for Economy.com. "And if we are spending more on gas and heating oil, we are spending less on everything else."

The burden is not borne equally. Costs are greater where it is coldest but also among the nation's less affluent, he said: A household below the median income spends an average of 8 percent on energy, compared with the national average of 5 percent, Zandi said.

Consumers account for two-thirds of the economy. But higher energy prices hit businesses, too, and their reluctance to spend already is the worst drag on an economy that has been struggling to recover from the 2001 recession.

Profits -- especially among transportation companies -- are increasingly squeezed by rising fuel prices. And manufacturers find it harder to sell in places like Europe, where more money must go to energy costs. Thinner margins and weaker revenue lead to cutbacks in hiring, investment and other spending.

Oil's global importance makes it all the more dangerous, argues Stephen Roach, chief economist at Morgan Stanley.

"Courtesy of a full-blown oil shock, the world is now flirting with yet another recession," Roach said.

Conventional wisdom expects -- and the Bush administration hopes for -- an Iraqi resolution that takes the air out of oil prices. But many businesses are not willing to bet on that, said Dorsey Farr, senior analyst at Balentine & Co.

"If war is prolonged, if oil prices change dramatically, you don't want to be the guy who went out on a limb and guessed wrong. It causes people to freeze, and the economy is feeling that right now."

Oil was going for $20 a barrel a year ago. This week, the price reached its highest level since the 1991 Gulf War, cresting near $40.

Pushing the price up is a cocktail of war anticipation, shortfalls in oil flowing from a politically embattled Venezuela and the unexpectedly high demand for heating oil in a surprisingly cold winter. And while the U.S. economy is not as dependent on energy as in 1973, the time of the Arab oil embargo, it remains vulnerable.

"It is already having a measurable negative impact," Zandi said. "And if we are still in the high $30s three months from now, we'll be in recession."

Predicting oil prices is a chancy game -- especially with war expected in the world's richest oil region. But a series of markers now warns of danger, just as they did in previous energy crises, according to a report by economists A.F. Alhajji of Ohio Northern University and James Williams, president of WTRG Economics.

Oil price spikes triggered or worsened downturns in 1973, 1979, 1990 and 2000.

The worst oil shocks -- 1973 and 1979 -- featured portents of trouble that are echoing now in:

• political turmoil in oil-producing countries;

• low supplies of oil in reserve;

• rising dependence on foreign oil;

• falling domestic production.

The Gulf War experience -- when prices rose rapidly only to fall nearly as fast -- shows that vulnerability does not always lead to crisis, Williams said. "But the current measures do indicate that the potential is historically high."

The potential comes not from just Iraq. Venezuelan production, undercut by near-revolution, has yet to recover to pre-crisis levels. Labor unrest has threatened Nigerian exports.

Foreign reliance higher

The United States, unlike Japan and most of Europe, has a huge oil industry. But U.S. production peaked in the 1970s after Alaska fields were tapped and has been declining since 1986.

Reliance on foreign sources reached record highs in the past two years.

At the time of the 1973 oil embargo, less than 35 percent of U.S. oil came from overseas, according to WTRG. That was nibbled down to 27 percent a dozen years later by a combination of domestic pumping and conservation.

U.S. imports now average about 8.3 million barrels per day -- roughly 60 percent of the nation's needs.

America's imported oil comes mostly from Canada, Saudi Arabia, Mexico, Venezuela, Nigeria and Iraq.

Good relations with producers don't really matter, since the oil market is what economists call "fungible." If a top U.S. supplier shuts down, oil could just be purchased elsewhere. But even the optimists think an attack on Iraq would suspend oil production, which now is more than 2 million barrels a day.

Shipments take time -- a month or more from the Middle East -- so short-term shortages are possible. And even when supplies can be shifted, a drop in supplies means higher prices.

So reliance on a small number of suppliers is worrisome. The top five account for about 76 percent of imports, up from 62 percent two years ago -- and about the same level as in 1990 when Iraq invaded Kuwait. During the 1979 crisis, five suppliers accounted for 53 percent, Williams said.

Counter to some public stereotypes, the Organization of Petroleum Exporting Countries has been quietly moving to expand production in the event of a war that even temporarily halts shipments of Iraqi crude.

Saudi Arabia, the main source of expanded production, can add more than 500,000 barrels a day, but turning on that spigot takes two to three months.

That mesh of factors has experts concerned.

"U.S. vulnerability to supply disruption has increased to historic levels recently," Williams said. "The U.S. is in no better shape to handle a supply interruption than it was at the time of the 1973 oil embargo, the Iranian revolution or the Iran-Iraq War."

Reserve levels low

Without oil, the nation's economic gears would grind to a stop.

Adding to the danger is the level of oil reserves held by U.S. companies: those stocks are at or near all-time lows. But while some critics charge that supplies are being manipulated to keep prices inflated, the dry tanks may be just a matter of good business. Despite the rising payments at the pump, many in the industry expect the world price of oil to drop soon after a U.S. attack on Iraq.

"And if you think prices are going to go down, you don't want to get stuck with high-priced inventory," Williams said.

Concerns about shortages were behind creation of the government's Strategic Petroleum Reserve. Right now, the reserve has about 600 million barrels of oil -- enough to replace about two months of imports. Meanwhile, commerical reserves have slipped to near-record lows.

Energy Secretary Spencer Abraham told Congress on Tuesday that the administration would tap the reserve if war threatens supplies.

But what if there is oil to be had, only at premium prices?

The 1973 oil embargo and 1979 Iranian revolution each more than doubled oil prices and helped trigger recessions in the United States. The Iraqi invasion of Kuwait in 1990 and the cutback on supply that tripled oil prices in 2000 both helped nudge the U.S. economy off the track.

Oil price shocks and price manipulation by OPEC from 1979 to 1991 cost the U.S. economy about $4 trillion, almost as much as we spent on the military, according to the Department of Energy's Office of Transportation Technologies.

Gulf War example

Arguments about war aside, the conventional wisdom is that a U.S. attack on Iraq will not trigger a global oil shortgage.

Rajeev Dhawan, director of the forecasting center at Georgia State, is among those who cite the Gulf War as precedent. Oil prices were already high, thanks to the Iraqi invasion of Kuwait. Outbreak of war sent prices shooting skyward to be followed quickly by the reverse as U.S. forces prevailed.

Each additional $1 per barrel translates to about 2.5 cents per gallon at the pump, economists say. Oil at $60 a barrel for any extended time could, therefore, mean gasoline selling for roughly 60 cents more per gallon than today.

The national average for regular gasoline is now about $1.66 per gallon, up from $1.13 a gallon a year ago, according to AAA.

While price boosts have been accompanied by allegations of gouging, most industry experts say price manipulation at the pump is limited. An Energy Department study in January showed a long-term match between global oil prices and what is -- eventually -- passed along to consumers. There is sometimes a lag, but the changes get to the pump within a few weeks, one way or another, the DOE found.

The consensus forecasts a repeat of the Gulf War pattern. Wall Street futures markets put the price of oil at about $25 per barrel by year's end.

So don't expect $2-a-gallon gas in Atlanta, Dhawan said. "I assume that it will be $60 a barrel for exactly 15 minutes."

War aside, current prices will likely continue for about three months, Dhawan said.

That will be a burden to the economy but no cause for renewed recession, he argued: Higher gas prices are more fodder for complaints than fatal to recovery, he said. "When the price of gas is $1.50, $2, $2.50 per gallon, we can all afford it, but we like to ... moan about it."

And thus far, the economy has only been "marginally" wounded by higher energy costs, said Richard DeKaser, chief economist for First National Corp.

Oil's economic value was greater in past downturns, he argued.

"If you look at real dollars, you cannot compare today's prices -- even at $36 a barrel -- to $40 in 1990 or even the mid-$30s in the 1970s," he said.

"Oil prices at this level are just nowhere near as harmful."

Proof of that is having oil prices up 87 percent in a year and the economy still expanding -- albeit slowly and somewhat sporadically. Producing each dollar of gross domestic product takes about half the amount of energy that was needed three decades ago.

But higher oil prices are still a tax that hits virtually the entire economy and transfers American wealth abroad, said Zandi of Economy.com. "There is probably nothing more pernicious to our economy than an increase in energy prices."

usinfo.state.gov

Q: Ari, you just talked about the economy and the no timing of the tax cut being related to the war in Iraq. Yet, this coming at the same time with the tensions with Iraq and the situation in Venezuela is pushing oil to $40 a barrel, and you've got a frigid winter in the northeast driving up natural gas prices. Is the cost of energy going -- is the President concerned that the cost of energy for Americans is actually going to punch a hole, and kind of negate the effect any benefit you might get from the tax package? And is anybody in the administration giving new thought, perhaps, to taking steps to alleviate this in the near term?

MR. FLEISCHER: Well, the cost of energy remains a very important, and the availability of energy remain very important issues for both the President and the Congress. And there have been a confluence of factors involving both the cold weather and a shortage of supply that have led to an increase in the prices, which concerns the President greatly. There is a cyclical nature to some of this, and we have seen the prices go up and down before.

To avoid a repeatable, predictable pattern of the cyclical nature, which hurts consumers, the President believes that is why Congress must pass a comprehensive plan to deal with energy, to increase conservation and to create more supply. These become predictable debates in Washington, as prices go up in the winter, and then they come down, and they go back up in the summer. The President thinks that people came to Washington to think long-term, and to act long-term, and to get ahead of the cycle. And that's why it's so important for Congress to pass the comprehensive legislation that the President has discussed to increase conservation and promote more production.

Q: If I could just follow. In the last 30 years, when oil hits $40 a barrel, it typically triggers a recession. Does the President believe that the tax package that he has before the Congress now will be enough to curtail a possible recession if oil stays at $40 a barrel?

MR. FLEISCHER: Well, I think, one, today is the perfect day to study some of these benchmarks about predictions and patterns, given the fact that the best estimators in the government did not have the estimate correct about the past. The fourth quarter GDP report we have today, it does indicate that you have to be guarded about estimates into the future. And that's why the President's focus is on the principal policies -- in this case, the American people need to conserve more, they deserve to have more supply. And we need to have an economic growth plan in place that creates jobs. All of the above.

www.pal-item.com Friday, February 28, 2003 By Don Fasnacht Staff writer

Farmers have to predict the future based on the unpredictable -- the weather, the price of oil and natural gas, the size of the soybean crop in South America.

Throw in the possibility of war, and predictions become all but impossible.

But Purdue University economist Chris Hurt does the best he can to see the agriculture markets for the year ahead. He was here Thursday to give his forecast to local farmers at a Wayne County Soil and Water Conservation District workshop.

"All markets are 'anticipatory markets,'" Hurt said. "Right now, the markets are anticipating bad things."

The major bad thing is war with Iraq. The anticipation is the problem, Hurt said.

"Once the decision is made to invade, we'll know a lot more within about 36 hours," Hurt said.

"There will be a lot of human tragedy, but the markets will stabilize," Hurt said.

War won't affect the weather, but it may have a profound impact on petroleum and gas prices.

Hurt pointed out that the day before the 1991 Gulf War began, crude oil was selling for $30 per barrel. The day after that invasion, it dropped to $20 per barrel. The price of unleaded gasoline dropped 27 cents per gallon in 12 hours, Hurt said.

Currently, the volatility of natural gas is the ringer in predicting corn profits for the coming season. An increase in natural gas prices last weekend increased the price of anhydrous ammonia as much as $150 a ton this week, effectively doubling the price. Anhydrous ammonia and other fertilizers are produced with natural gas.

Crude oil prices, directly affected by war and peace in the Middle East and labor conditions in Venezuela, have been inching up in recent weeks and months. They will affect the cost of gasoline and fuel for planting and harvesting.

Making predictions about war and petrochemicals is simple compared to predicting the weather for the next six or eight months.

"The western Corn Belt (which includes Iowa) has fallen under low levels of drought," Hurt said.

Reduced crops there would drive corn prices up, which would be good for Indiana farmers. But Indiana had the drought last year.

In 2002, a wet spring delayed planting and a bone-dry summer and fall stunted the seed that got into the ground. Hurt said fields in east central Indiana were expected to yield 144 bushels per acres. They averaged 95 bushels per acre.

But good crops in the west kept per-bushel prices down. "The western corn belt was in good shape last year. It saved the national market," Hurt said.

"We don't have a huge inventory coming into this year," Hurt said. "Weather problems (in the west) could force prices up."

Hurt said a million acres in Indiana, Ohio and Illinois that didn't get planted in corn last year will probably be planted this year.

The Corn Belt centered on Indiana should have a good crop. Ground moisture is back to normal. Long-range forecasts call for a dry spring, meaning early planting. If the summer is arid, there should be enough corn that Hurt said $2 per bushel prices for corn are possible at harvest.

The concern for soybean farmers isn't Iowa weather; it's South American weather.

Hurt said summer in the Southern Hemisphere has been "perfect" this year and the South American soybean crop should be 15 percent greater than last year.

"The world is shifting over to South America for soybeans," Hurt said. "The market is at the tipping point."

"We're in a period of great uncertainty," Hurt said.