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Peak everything

As far as the discussion of peak corn is concerned, sure, the earth is finite.


But of course the master commodity is crude oil and corn as we know it is mostly just a second order derivative of crude oil- albeit with its own unique constraints- there is only so much land that is suitable for grain production.


But the Big Kahuna is oil.  The PTB have been running themselves ragged in spinning the yarm about the US' newfound abundance of oil and gas, even going so far as co-opting respected brands such as Harvard University via the Maguiri report.


It is, in fact, a very nice thing to have found a smidge of oil and gas, assuming we use it wisely but it certainly appears that the plan is just to use it as a decoy to keep folks shoppin' 'til they drop.


Take a look at the long term chart of US oil production.


The surge in production from ultra deep water and on land unconventional plays has indeed produced a bump on the order, or even a little greater than what came after Prudhoe came on line in the 80s. But we're still below that level and well below the point where Peak Oil for the USA came in 1970.


So anyway, as far as corn and corn prices are concerned, what does it mean?  Well, regardless of whether we had a massive government corn ethanol program, I'll submit that over time the cost of various forms of calories will tend to equalize with each other. I haven't done the calculations lately but the last time I did, it looked like $80 crude oil made corn worth about $5/bushel on an equivalent basis.


That is long term supportive, not necessarily directly so in the short term.  Nat Gas, for instance, is currently priced much lower per calorie because of a whole number of short term factors that are unique to it.


So as far as any short to intermediate planning or forecasting for corn farmers I can't say that there is much to take away. Longer term, sure, but you can die in thousand times  short terms while you're waiting for the long term.


The shortter term issue seems to be more economic than anything. One thing that currently seems clear is that even with the "newfound abundance" crude oil prices are pretty sticky above $80/bbl. WTI hit $100 this morning, 


We seem to have found some kind of an uneasy economic equilibrium whereby, with enough artificial stimulation, the US and world economy can limp along with $90ish crude but it remains an unsteady balance against a strong headwind.  The new plays that are adding supply (or at least keeping up with the decline in old plays globally) tend to have marginal costs in that range.


So anyway, breaking it down. Corn IS now tied more closely to crude prices than just the long term theoretical value. Gas prices will remain high and will be directly supportive of corn prices- not necessarily linearly but generally.


In the presence of a heavy tax on the economy via high oil (and derivatives of oil, such as food) prices, the economic outlook skews to the downside and substantial endogenous risks- i.e. heavy debt and massive ponzi financialization- present the risk of cascading financial turmoil should the current uneasy equilibrium begin to come apart.


Also, the direct cost of the food price increases to US consumers is pretty small in terms of disposable income and has been relatively level for five years so that little nick is still gone but it is just a nick. Not quite so for a lot of the world that consumes grain lower on the pyramid and geoploitical risks are thus elevated.


Looking into the very cloudy crystal ball- things always go on longer than you think they can and then they don't.



16 Replies
Veteran Advisor

Re: Peak everything

Good post noxie. I do not agree on the peak oil thingy .  I do believe that looking at production without looking at needs of the machine that drives oil production gives us a skewed opinion of actuall production. In other words maybe we are producing less just becasue we ned less?  The economic engine of the world has definantly slowed.  Therfore if she is idleing we just need less. the price of gas as we see it has more to do with the value of the dollar instead of the value of the gas.

That being said we need to realize that any analysis of oil without an analysis the value of the dollar is only looking at one half of the picture.  


So my bias is that the whole price of things has more to do with the vehicle we pay for the items with rather than the value of thing we are purchasing. 


BTW ask a family with teenage children at home if they think food has leveled off. you will get a resounding NO!


Havge a good 4th. I am going to rebuild my feed wagon today. See Ya!

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Re: Peak everything

Hi JR,


True enough, it really won't be possible to spot the exact point of Peak Oil until it is well in the rearview mirror.


The one thing you can say for certain is it is completely clear about the US. It's where the Oil Age began and is the best explored and drilled oil province on earth.


I'd even give you a 10% chance that we could very temporarily challenge those 1970 production highs if the number of rigs working shale plays could be quadrupled- those wells exhibit a totally different production profile from conventional oil and it is 100% a function of constant drilling and fracking.


 Some say that we're already working our way through the sweet spots of those places and I can't say, but it is the nature of the game. You always go after the easiest and closest stuff first, like duh.  And it is likely that it will require more than $100/bbl to get at a lot of that identified resource- with current technology nobody thinks we can get more than about 10% anyway.


As far as the global game, Saudi Arabia is the swing producer and it is hard to tell how much they could produce and for how long.  BTW, as far as the meme about how we should be happy consumer bees because "the US will surpass Saudi Arabia in oil output" you have to keep in mind that they currently don't produce a lot more than we do, they are just a bit ahead of Russia and all three are well below what the US produced in 1970.


My current view is admittedly pretty dark but I can't get over thinking that $5 trillion dollars (approximately what we've spent on two wars and a police state in the last 12 years)  is a heckuva lot of money and probably was enough money that we could now be a 100% renewable society with full employment. But it got completely thrown away.


The most insulting meme that I've been assaulted with recently was the Repub, post-circular firing squad thing about how Obama won because he bought the votes of the 47% (there is in fact a lot of room for duscussion about our social programs). But it is so obvious that our current circumstances much more about the 53% who think they have something going and want to keep it, no matter how unsustainable it might be.


"Men of privelege will always will always risk their own destruction before surrenduring any part of their advantage."


J.K. Galbreath

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Senior Contributor

Re: Peak everything

JR & nox,


I my view the world peaked in conventional crude oil back in 2005(look at the numbers).  As far as conventional, deep sea, shale, bio, etc. oil, worldwide we have what some call peak cheap oil.  As far as demand is concerned, I like what Jim Puplava describes as the petro business cycle.  In short, the oil price acts like the fed fund rate use to.  Lowering and raising economic activity.   

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Re: Peak everything

I'd agree with that.


Given punky global growth rates even with a whole lot of stimulus, I'd have to conclude that $100 is too high although it probably takes closer to $150 to produce a Volkerian tightening.


And as you move on to the stuff with a $150 marginal cost that is what you get.

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Re: Peak phosphate

A little bit closer to home.


One interesting thing that I've filed away over they years is that Morocco isn't just the Saudi Arabia of phosphate reserves, it is OPEC plus Russia and throw in Exxon and Shell.

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Re: Peak phosphate

Maybe those guys with hog finishing barms and P1 tests at 200 are onto something.

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Re: Peak everything

so why not develop policices and stratedgies so the 47% can attain what the 53% have. Liberalism breeds misery for all. In the drive for fairness do we all want to be miserable??. Why is what the 53% have done unsustainable.?? Grow the economy and start producing againn instead of just spending.


Its all about retaining and gaining power for the ruling class wars , spending .,taxes etc.

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Frequent Contributor

Re: Peak everything

One interesting factoid....In May the USA became the number #1 producer of crude oil for the first time in 3 decades.....Drill baby drill :~) ....but seriously nothing brings out the oil better than $100 crude. And with everything so efficient we need about 1/2 as much enrgy per capita.....but of course this is a growing world and with countries like china coming of age needs do go up faster than efficiencies....JP

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Senior Advisor

Re: Peak everything

As My son in law says, "you aint seen nuthing yet!"  New fracking and directional drilling has opened a whole new territory for oil production. My son in law works in the business suppling storage and puming and measuring equipment. He says you can draw a line from houston to San Antonio and everything south and west of that line to the mexican border is ripe for drilling.


Companies that provide services to the oil drillers and producers cannot get enough help or supplies to keep everything going. So much equipment is back ordered because they cannot meet demand. Good help is a premium and areas that need more workers have housing shortages. The solution is they hire experienced people from existing businesses that already have their own housing in the area. Thus it is a cutthroat business just to keep help at premium wages.


I don't know how many years supply we have coming on but they predict that oil and gas production in the US will exceed US usage with 5 to 7 years.


He has been doing work in North dakota, South Texas, west texas and even some work in the former Soviet union.

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