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Page added on February 10, 2010

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Agricultural Commodities in Light of Peak Oil

The subject of Peak Oil seems timely this week, as it has been pointed to in a number of news-worthy articles and video interviews. It is imperative to stay informed on this issue. This article hopes to provide some of the latest pertinent information on the subject while tying together how agricultural and oil commodities may relate to Peak Oil.
Agricultural commodities share similar economic dynamics to oil production. There is supply and demand. There are important policy drivers including subsidies, taxations, and price supports. There is slack in both systems. Profit motivates each sector to produce product. Unpredictable variables are contained in each including weather, politics, and unrest. Each reacts similarly to macro economic conditions.

Where it becomes interesting is in the transition between our bubble economies, which have an illusion of appearing more affluent than they really are, to global bubble popping economies which, by necessity, are forced to cut slack from the system. Right now, there is nothing more desired by economically challenged nations than the desire to export. In OPEC’s case, this means producing oil, and going against production quotas in a selfish “get more” for “me” mentality. BBC news reported recently that OPEC compliance with production targets fell to 55-56% last month compared with 80% a year ago.

…]In timing, grain and agricultural commodity production levels may likely lag and reflect escalating oil costs inversely. This means that consumers may be squeezed by food and energy costs at about the same time, with high energy costs slightly preceding high food costs. It will depend upon how much slack can logically be worked out of the grain commodity production system, as well as the slack in the oil use system.

Whereas the agriculture commodity production is affected by variables such as weather, there is the political instability wild-card in oil production. Increased costs of these basic necessities may be timed to coincide with the transition from a deflationary money supply environment to a hyper-inflationary one.

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