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After years being caught in what can best described as a death spiral, the likes of which multiple reverse splits could not fix, the U.S. Natural Gas Fund (NYSE: UNG) has started to perk up recently. In fact, the ETF which at one point earlier this year had lost almost 96% of its value since its 2007 debut, has jumped 7.3% in the past week.

The reason for the bullishness? The U.S. Energy Information Administration cut its 2012 production outlook for the clean-burning fuel while dramatically increasing its demand forecast. Good news UNG and other ETFs that are heavily exposed to the nat gas trade.

But this is bad news for one specific group of funds: Agribusiness ETFs. With a quick chemistry lesson, we'll explain why: Natural gas is an integral component in the production of nitrogen-based fertilizers. Simply put, the price of nitrogen fertilizer is intimately correlated to the price of natural gas.

Consider the following from the Samuel Roberts Noble Foundation

"Manufacturing 1 ton of anhydrous ammonia fertilizer requires 33,500 cubic feet of natural gas. This cost represents most of the costs associated with manufacturing anhydrous ammonia. When natural gas prices are $2.50 per thousand cubic feet, the natural gas used to manufacture 1 ton of anhydrous ammonia fertilizer costs $83.75. If the price rises to $7.00 per thousand cubic feet of natural gas, the cost of natural gas used in manufacturing that ton of anhydrous ammonia rises to $234.50, an increase to the manufacturer of $150.75."

In other words, it's not a bold statement to say the reason CF Industries (NYSE: CF), the largest U.S. nitrogen fertilizer producer, is down 9% in the past week is because UNG is up 7.3% over the same time.

Predictably, natural gas' climb has also been bad news for the likes of the Market Vectors Agribusiness ETF (NYSE: MOO) and its new, unheralded rival, the iShares MSCI Global Agriculture Producers Fund (NYSE: VEGI).

The Global X Fertilizers/Potash ETF (NYSE: SOIL) isn't escaping the carnage either. SOIL's nitrogen heavy lineup has dragged the ETF down more than 5% in the past week. CF accounts for almost 6% of SOIL's weight and is the fund's second-largest holding.

CF Industries accounts for barely more 3% of the overall weights of MOO and VEGI, but that's just one stock. Agrium (NYSE: AGU) and Yara International also have nitrogen exposure and both are held by both ETFs. Potash Corp. (NYSE: POT), the second-largest holding in both ETFs, is obviously known more for its namesake crop nutrient, but the company controlled 2% of global nitrogen production at the end of 2010, according to its Facebook page.

Clearly, from the equities side, higher natural gas prices are problematic for MOO, VEGI and some of their constituents. On the futures side, the Teucrium Corn ETF (NYSE: CORN) has slid almost 5% in the past week,. Again, it's easy to see why: Corn is one of the most nitrogen-intensive crops to produce.

It's certainly not everyone's cup of tea, nor should it be, but perhaps the current state of affairs with ETFs such as MOO and VEGI calls for a look at the Direxion Daily Agribusiness Bear 3X Shares (NYSE: COWS), a thinly-traded, triple-leveraged bearish play on agribusiness stocks. Consider COWS as a short-term hedge on agribusiness funds or as a pairs trade with UNG or the First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG).

For more on energy ETFs, please click HERE.

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