Peak oil, $6 corn, $15 soybeans?
This week, I heard the first discussion about the concept of "Peak Oil", which is the idea that oil production worldwide has hit its peak in 2006, and is now on the downward side of total production. That could have some far-reaching repercussions for the world's commodity markets, with some doomsday type forecasts out there by well respected people.
Taken from Wikopedia, here is the definition and some discussion of "Peak Oil":
"Peak oil is the point or timeframe at which the maximum global petroleum production rate is reached. After this timeframe, the rate of production will enter terminal decline. If global consumption is not mitigated before the peak, the availability of cheap conventional oil will drop and prices will rise, perhaps dramatically.
M. King Hubbert first used the theory in 1956 to accurately predict that United States oil production would peak between 1965 and 1970. His model, now called Hubbert peak theory, has since been used to predict the peak petroleum production of many other countries, and has also proved useful in other limited-resource production-domains. According to the Hubbert model, the production rate of a limited resource will follow a roughly symmetrical bell-shaped curve based on the limits of exploitability and market pressures.
Some observers, such as petroleum industry experts Kenneth S. Deffeyes and Matthew Simmons, believe the high dependence of most modern industrial transport, agricultural and industrial systems on the relative low cost and high availability of oil will cause the post-peak production decline and possible severe increases in the price of oil to have negative implications for the global economy. Predictions as to what exactly these negative effects will be vary greatly. If political and economic change only occur in reaction to high prices and shortages rather than in reaction to the threat of a peak, then the degree of economic damage to importing countries will largely depend on how rapidly oil imports decline post-peak.
The Export Land Model shows that the amount of oil available internationally drops much more quickly than production in exporting countries because the exporting countries maintain an internal growth in demand. Shortfalls in production (and therefore supply) would cause extreme price inflation, unless demand is mitigated with planned conservation measures and use of alternatives, which would need to be implemented 20 years before the peak.
More optimistic models, which assume a delay of peak production until the 2020's or 2030's and assume major investments in alternatives will occur before a crisis, show the price at first escalating and then retreating as other types of fuel sources are used as transport fuels and fuel substitution in general occurs.
More pessimistic predictions operate on the thesis that the peak has already occurred or will occur shortly and predict a global depression, perhaps even leading to a collapse of industrial global civilization as the various feedback mechanisms of the global market cause a disastrous chain reaction." This is some pretty heady stuff, but the fact that it is being discussed at high levels (even the US Congress) is a bit unnerving. With crude oil prices surging to new highs and the confidence with which funds have been buying almost all commodities (grains, energy, and metals), this becomes a scenario that is very concerning to grain markets.