Fracking and Magic Beans

October 16, 2012 10:46 AM

Since the advent of fracking, a little known bean grown in the northern desertbelt of India has leapt into the spotlight. Guar gum powder is used in the fracking process and acts as a thickening agent when extracting crude oil and natural gas from shale.

In India, guar futures had been traded as a regular commodity and demand from the U.S. and Canada drove prices and consumption of the humble bean skyward. But a controversy in early April of this year forced regulators to postpone all new guar futures contracts indefinitely. An announcement was expected today from officials in India, but so far, no word has come.

Allegations of price manipulation by futures traders set off a probe into the matter which resulted in India's Forward Markets Commission (FMC) officials convicting four Rajastan-based traders of price rigging, suspending their trading privileges.

Guar futures trading may soon begin again in earnest which is very good for farmers in India. The Union Ministry of Agriculture expects guar output to rise to meet increasing world demand by up to 20% over last year.

With any luck, this fracking input staple will find stability in the futures market, and guar beans will realize their true market value, giving farmers in India a valuable commodity that supports families on the farm. At the same time, with bags of magic beans in hand, crude oil and natural gas producers can continue to offer crude and natural gas at historically soft prices. Keep an eye on guar as we move forward. If the price of this input climbs too high, or more sinister forces prevail, crude oil and natural gas producers may find their margins thinning, and prices could revolt.


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