R
Ridgerunner
Guest
I don’t have time to research all this stuff. Wish I did, but I don’t. It’s not one of the economic areas I research for investment purposes anyway, and never has been. Perhaps it should have been.
However, googling for a few minutes turns up a few interesting things. Many do think both food and fuel are in a “bubble”, and could come screaming off the reel in the not-too-distant future. I see that gold is off $100 from its high earlier this year and if the “gold bugs” are right, a decrease in oil prices and other commodities might not be far behind. One analyst attributes the upsurge in both to misallocations of resources, “friction” losses caused by reorintation of resources and, of course, speculation. Interestingly, oil production is up in 2008 vs 2007, but consumption is down; certainly in the U.S., but also even in China. Doubtless the current recession is in good part responsible for the decline in consumption and miscalculation is in good part responsible for the increase in production.
Interestingly, one writer believes that changes in resource allocation are, in themselves, wasteful and have a dampening effect on economies. So, peaks and valleys in prices of commodities, which encourage such “friction” can, themselves, result in shortages as people change from producing “X” in favor of producing “Y”. Of course, speculators with extraordary power can cause the peaks and valleys in order to make money on both ends. I recall once when I did that inadvertently. Market makers keep only so much stock on hand. If one repeatedly places orders exceeding the supply, it abnormally affects both the peaks and valleys. As I said, I once did it without realizing it in a very low cap, thinly traded local but listed stock. Got an irate phone call from the market maker, who wondered whether I somehow had some information I shouldn’t have. And I was a piddling “player”, investing just a little bit I had left over after paying the rent. Big, big players can do things like that on a much larger scale. I recall talking to a poor guy on the other end of a former First Lady’s live cattle futures famous trade. Unfortunately for him, he was encouraged by her broker to buy big ( he was a really wealthy guy…WAS). Interestingly, as he invested, so did other big players. The price went up and up. Suddenly, some other players and the former First Lady all jumped out at the same time and he was among the chumps without a chair when the music stopped. He lost a lot more than she made.
Some fairly intriguing things. If you go back and pick your base year as, say, 2001, you can make a case for the proposition that the Euro countries are, in effect, paying between $60 and $70 for a barrel of oil if, oil was at $120 U.S. if you consider the differences in the relative value of the Euro and the dollar then and now. Of course, that’s likely to change. And, my goodness what a lot of money some are going to make off the losses and misery of others! The time may come when the farmers who are making money now will hit the wall if they keep worshipping the ethanol corn god. Seems likely the short sellers already have their fingers hovering over the button.
I am not an expert. I can read this and read that and conclude that the world is coming to an end or that we’re not terribly far away (6 mo to 1 yr maybe) away from a reversal when what’s up now will be down and what’s down now will be up. It depends on who you read.
Oh yes, the profit from making ethanol is massively down from what it was just a couple of years ago. According to some, it’s fast approaching the vanishing point. Seems the “real” market for it is saturated. So, since land previously used for “Grain A” is being used for corn, thus driving up the cost of both corn and “Grain A”, with lots of allocation waste in the process, it is not beyond the realm of possibility that a fair amount of corn land is going to go back to “Grain A” in the near future (of course it takes at least a year to change) as farmers get tempted away from corn and back into “Grain A”. Again, the reallocation of resources will be wasteful.
I do not disbelieve those who say oil will run out sometime or other, even shale and tar sands oil. So will the sun, after all, someday or other. It still seems to me the real question is whether and how adjustments can be made and just how much waste will occur in the process. It’s pretty hard to argue that the “Grain A” to corn-for-ethanol reallocation served any useful purpose. Other adaptations might be much better in the outcome.
But just looking at all these disparate opinions, each with his own facts and figures and algebraic equations and abstreuse symbols, it is difficult for me to believe we’re ineluctably on the cusp of revisiting the stone age. Knowing as I do that a food producer really can reduce his oil consumption without reducing production, at least in some spheres, I’m tempted to think it’s not a real, structural food shortage we’re looking at, but one of those cycles we who are older and are not George Soros, have all come to hate.
However, googling for a few minutes turns up a few interesting things. Many do think both food and fuel are in a “bubble”, and could come screaming off the reel in the not-too-distant future. I see that gold is off $100 from its high earlier this year and if the “gold bugs” are right, a decrease in oil prices and other commodities might not be far behind. One analyst attributes the upsurge in both to misallocations of resources, “friction” losses caused by reorintation of resources and, of course, speculation. Interestingly, oil production is up in 2008 vs 2007, but consumption is down; certainly in the U.S., but also even in China. Doubtless the current recession is in good part responsible for the decline in consumption and miscalculation is in good part responsible for the increase in production.
Interestingly, one writer believes that changes in resource allocation are, in themselves, wasteful and have a dampening effect on economies. So, peaks and valleys in prices of commodities, which encourage such “friction” can, themselves, result in shortages as people change from producing “X” in favor of producing “Y”. Of course, speculators with extraordary power can cause the peaks and valleys in order to make money on both ends. I recall once when I did that inadvertently. Market makers keep only so much stock on hand. If one repeatedly places orders exceeding the supply, it abnormally affects both the peaks and valleys. As I said, I once did it without realizing it in a very low cap, thinly traded local but listed stock. Got an irate phone call from the market maker, who wondered whether I somehow had some information I shouldn’t have. And I was a piddling “player”, investing just a little bit I had left over after paying the rent. Big, big players can do things like that on a much larger scale. I recall talking to a poor guy on the other end of a former First Lady’s live cattle futures famous trade. Unfortunately for him, he was encouraged by her broker to buy big ( he was a really wealthy guy…WAS). Interestingly, as he invested, so did other big players. The price went up and up. Suddenly, some other players and the former First Lady all jumped out at the same time and he was among the chumps without a chair when the music stopped. He lost a lot more than she made.
Some fairly intriguing things. If you go back and pick your base year as, say, 2001, you can make a case for the proposition that the Euro countries are, in effect, paying between $60 and $70 for a barrel of oil if, oil was at $120 U.S. if you consider the differences in the relative value of the Euro and the dollar then and now. Of course, that’s likely to change. And, my goodness what a lot of money some are going to make off the losses and misery of others! The time may come when the farmers who are making money now will hit the wall if they keep worshipping the ethanol corn god. Seems likely the short sellers already have their fingers hovering over the button.
I am not an expert. I can read this and read that and conclude that the world is coming to an end or that we’re not terribly far away (6 mo to 1 yr maybe) away from a reversal when what’s up now will be down and what’s down now will be up. It depends on who you read.
Oh yes, the profit from making ethanol is massively down from what it was just a couple of years ago. According to some, it’s fast approaching the vanishing point. Seems the “real” market for it is saturated. So, since land previously used for “Grain A” is being used for corn, thus driving up the cost of both corn and “Grain A”, with lots of allocation waste in the process, it is not beyond the realm of possibility that a fair amount of corn land is going to go back to “Grain A” in the near future (of course it takes at least a year to change) as farmers get tempted away from corn and back into “Grain A”. Again, the reallocation of resources will be wasteful.
I do not disbelieve those who say oil will run out sometime or other, even shale and tar sands oil. So will the sun, after all, someday or other. It still seems to me the real question is whether and how adjustments can be made and just how much waste will occur in the process. It’s pretty hard to argue that the “Grain A” to corn-for-ethanol reallocation served any useful purpose. Other adaptations might be much better in the outcome.
But just looking at all these disparate opinions, each with his own facts and figures and algebraic equations and abstreuse symbols, it is difficult for me to believe we’re ineluctably on the cusp of revisiting the stone age. Knowing as I do that a food producer really can reduce his oil consumption without reducing production, at least in some spheres, I’m tempted to think it’s not a real, structural food shortage we’re looking at, but one of those cycles we who are older and are not George Soros, have all come to hate.