Futures

[polystyle]

'Futures' - as in 'happens in the future' ...
Only Haiti's had an actual riot so far , others may be close though.

Correction: By today, there are already reports of food riots also in Indonesia and African nations.
So futures has already become 'Presents' ...
Rice shortages on W Coast stores. some limit amount you can buy.
India has banned export of all but the highest quality rice and Viet Nam canceled the signing of new contract for foreign rice sales.

 

[swears]

Love this guy's attitude:

"Rearrangement of Titanic deckchairs..."

http://www.guardian.co.uk/theguardian/2008/mar/01/scienceofclimatechange.climatechange

This also made me laugh:

http://commentisfree.guardian.co.uk/david_cox/2008/04/precautionary_principles.html

 

[polystyle]

Lovelock just keeps on truckin' doesn't he ?

And David Cox, er great photo man !

 

[Mr. Tea]

This also made me laugh:

http://commentisfree.guardian.co.uk/david_cox/2008/04/precautionary_principles.html

This is a bunch of arse. Not the article itself, I mean, but the 'atom smasher doomsday' panic: particles with millions of times more energy that ones we can accelerate in a lab smash into the earth's atmosphere all the time, and if it was going to cause the end of the world it probably would have done so by now.

We're also spending trillions of dollars, fighting wars and abandoning our liberties in the face of a threat from terrorism that, though real, is one of the lesser problems confronting the world. We impoverish our lives, and especially those of our children, in deference to health-and-safety hazards that barely exist.

We make these errors because we're peculiarly reluctant to perform the straightforward calculations that ought to underpin any kind of precautionary activity. There appear to be a number of reasons for this state of affairs.

........................................................................

On the other hand, we seem ready to give undue weight to alarums that feed our prejudices. Evil corporations are obviously happy to poison us: don't touch GM crops. Nasty men are out to corrupt our children, so jolly well watch out. The planet's bound to overheat because our own wicked profligacy ought not to go unpunished.

Quite.

 

[polystyle]

Resistance is futile ...

Global food shortages causing countries, corporations to look again at genetically modified foods.
Britain's National Beef Association which represents cattle farmers issued a statement this month demanding that 'all resistance' to genetically modified crops "be abandoned immediately in response to shifts in world demand for food, the growing danger of global food shortages and the prospect of declining animal production"

'Animal production' um um good,
makes me think of the headless (therefore faceless) 'transgenetic' chicken meat creatures engineered by food scientists in Margaret Atwoods Oryx & Crake.
Chicken Nobs (TM)

 

[vimothy]

Couple of good things on blogs today:

Megan McArdle gives one bottom line, referring to Paul Krugman's somewhat pessimistic column. I would say that China has been massively productive but not so much in producing commodities. That means the demand for commodities has gone up much more rapidly than the supply. You could imagine an alternative universe in which China grew by figuring out ways to produce oil, copper, and rice much more cheaply. Of course that's not what happened and it is relatively easy to see why not. Following some good policy changes, Chinese growth has been driven by a massive rural to urban migration and yes we are talking about hundreds of millions of people. It's plastic basketballs that have become cheaper, not the products of farms.

The mere addition of labor inputs to urban areas doesn't, in the short run, help you produce commodities more cheaply. Think of the Solow model where K and L have gone up lots but the rate of generating new ideas is only slightly higher.

When all those new Chinese engineers and scientists are at the peak of their creative powers, this relationship will reverse itself and commodities prices will plunge. But it's quicker to produce another toy than to bring about a new Green Revolution, so in the meantime commodity prices are very high. I give the current price trend another ten or fifteen years or so to run. Eventually high commodity prices will seem permanent and then the bottom will drop out.​

And from Megan's blog, this comment:

With the bull markets in most commodities, particularly oil, there is a real demand component, and a speculative component. The real demand component will persist until supply catches up with demand, which will probably take a few years, in the case of oil. It will probably take at least that long for large new sources of oil to come online (e.g., the Tupi and Carioca fields off of Brazil), and for alternative vehicles (hybrids, electric, etc.) to expand market share by a material amount. Speculative demand, on the other hand, can disappear in a flash, as speculators dump commodities for stocks or other investments.​

 

[IdleRich]

"e.g., the Tupi and Carioca fields off of Brazil),"

These are the recent finds right? Are they fully confirmed and if so how large are they? I think I've seen some suspicious reporting of the size of the bigger and more recent one. Am I thinking of the right thing?

 

[vimothy]

These are the recent finds right? Are they fully confirmed and if so how large are they? I think I've seen some suspicious reporting of the size of the bigger and more recent one. Am I thinking of the right thing?

I know that there were recent, large finds off the coast of Brazil, which had analysts excitedly predicting a new geo-strategic realignment in Latin America (away from Chavez, natch). I think I posted something at the time. I haven't read anything about the veracity of the discoveries, however. I think the Tupi field (discovered late '06) is supposed to hold 8 million of recovereable light crude -- a forty percent increase in reserves, making Brazil a net exporter of oil. A good time to own shares in Petrobras. I know pretty much nothing about Carioca (discovered late '07), except that it's near to the Tupi field.

Sound like you have heard something else, though -- what gives?

 

[IdleRich]

"I think the Tupi field (discovered late '06) is supposed to hold 8 million of recovereable light crude -- a forty percent increase in reserves, making Brazil a net exporter of oil. A good time to own shares in Petrobras. I know pretty much nothing about Carioca (discovered late '07), except that it's near to the Tupi field."

That should be 8 billion right?
Anyway, it is Carioca I'm talking about but I'm guessing that the (controversial) figures quoted for it of 33bn barrels are new to you?

"Haroldo Lima, head of Brazil's National Petroleum Agency, said the country was harbouring an oil find that vied with the largest in Saudi Arabia and Kuwait. As a result, the price of shares in BG, the UK exploration company, soared 8% and helped lift the wider London stock market.
Lima told an industry conference that Petrobras, the national oil company partnered by BG, "may have discovered a huge petroleum field that could contain reserves as large as 33bn barrels, amounting to the world's third largest reservoir.""

People are suspicious about this though if you read the whole article.

http://www.guardian.co.uk/world/2008/apr/15/brazil.oil

Thing is, most of what I've read about oil (prior to this find) suggests that this bit in what you linked

"With the bull markets in most commodities, particularly oil, there is a real demand component, and a speculative component. The real demand component will persist until supply catches up with demand"

Is optimistic to say the least. My understanding is that Saudi Arabia et al have been unable to increase supply to match demand at the moment, why should we think that they will be able to match demand when it increases? Especially as there is good reason to think that they may have exaggerated their reserves as they are incentivized to do that by the OPEC system. The only obvious way that oil supply could be increased in the long term is by a massive new find.... like this one may turn out to be. We'll see I guess.

 

[vimothy]

That should be 8 billion right?

Er, yeah...

Anyway, it is Carioca I'm talking about but I'm guessing that the (controversial) figures quoted for it of 33bn barrels are new to you?

People are suspicious about this though if you read the whole article.

Interesting... I guess we'll just have to wait and see.

Thing is, most of what I've read about oil (prior to this find) suggests that this bit in what you linked... Is optimistic to say the least.

Well, that's how commodities work generally. Obviously, if oil has run out, the supply will never be able to catch up with demand.

My understanding is that Saudi Arabia et al have been unable to increase supply to match demand at the moment, why should we think that they will be able to match demand when it increases? Especially as there is good reason to think that they may have exaggerated their reserves as they are incentivized to do that by the OPEC system. The only obvious way that oil supply could be increased in the long term is by a massive new find.... like this one may turn out to be. We'll see I guess.

That's interesting as well, because a lot of the stuff I've read in fact suggests something quite different. I don't doubt that the incentive is there for Saudi Arabia to exaggerate their reserves, but question of why supply hasn't increased to meet demand is not as simple as there not being enough oil in the ground. According to the NPC report that I read last year, from what I remember, it has more to do with resource nationalism, a lack of refining capacity and problems in the supply chain. I.e., it's not that there isn't enough oil in the ground (at the moment), but that there are severe problems getting it out of the ground and into the global economy.

 

[Mr. Tea]

I.e., it's not that there isn't enough oil in the ground (at the moment), but that there are severe problems getting it out of the ground and into the global economy.

Are we trying to tiptoe around the W*r in I**q, by any chance? I mean, it does have the world's second-biggest reserves, doesn't it? Or is it third-biggest? A hell of a lot, anyway.

 

[vimothy]

Are we trying to tiptoe around the W*r in I**q, by any chance? I mean, it does have the world's second-biggest reserves, doesn't it? Or is it third-biggest? A hell of a lot, anyway.

Third biggest.

But I'm not trying to tip-toe around anything. Iraq exceeded pre-war production levels last year. And Iraqi production will increase massively as soon as they stop arguing about it and start selling exploration and export contracts.

 

[IdleRich]

"That's interesting as well, because a lot of the stuff I've read in fact suggests something quite different."

OK, well that's the problem. I'm not an expert (and I don't think you are) and at some stage you have to choose which points of which opposed experts you find most convincing. I certainly read some arguments which seemed pretty powerful at the time but I'm willing to believe that there may be other, yet more convincing arguments I haven't read that suggest that oil production can be increased. And if the reserves of this new field are correct then maybe I have backed the wrong horse as it were.
One thing I would say is that those who think oil production can be increased have consistently under-predicted the price of a gallon over the last few years. And as we know people certainly find it difficult to accept that the paradigm may have changed - though of course that's not an argument to say that it has.

"Are we trying to tiptoe around the W*r in I**q, by any chance?"

Not especially. The argument is that there has been an underinvestment in refining and piping capacity from a number of companies and countries (Iran especially I think) and that by improving these oil production may be increased.

 

[vimothy]

I'm not an expert (and I don't think you are)

Not by a long shot.

If we look at the supply side of a commodity like oil, we can identify or at least concieve of various reasons that supply might not be able to meet demand. It might be the case that there's simply not enough oil in the ground to meet increased demand. It might be the case that we lack the refining capacity to meet increased demand. It might be the case that oil is located in countries with governments who use it as a political weapon. It might be the case that oil is located in countries that are too unstable to properly supply at optimal levels. There are probaly more reasons.

Personally, I have no stake in the outcome. There's either enough oil for now and other problems, or there's not. As far as the peak oil thing goes, they seem to have been wrong so many times that it's like listening to the Jehova's Witnesses about judgement day. But maybe they'll be right eventually. I don't know, but it seems like industry people think that the oil is there but other factors are the problem.

Also, you have to factor in the falling dollar.

This post from Econobrowser (run by a liberal economics prof with an interest in energy) is informative:

And there were some important additional new developments just this week. On the positive side, Brazil announced the possibility of enormous new oil reserves. And for the pessimists, Russian oil production, whose increase has been a critical factor in world oil supplies up to this point, fell 1% in 2008:Q1.

Both of these stories are potentially huge developments. If both Russian and Saudi production have in fact peaked, the global peak cannot be far off, even if the Brazilian find is borne out. But I nevertheless am not persuaded that any of these news items is the primary explanation for the recent highs in oil prices.

The reason is that we're seeing similar increases since the start of the year in the price of virtually every storable commodity. The 12% increase in oil prices this year is in fact just the median for the group of 15 commodities graphed below. It seems to me we should be looking for a single explanation behind the common behavior of the group, rather than try to develop a separate theory for aluminum, barley, coffee, cocoa, copper, corn, cotton, gold, lead, oats, oil, silver, tin, and wheat....

I also find it implausible to attribute the commodity price increase to a surge in demand. The economic news over the last three months has been very convincing that output is slowing, not accelerating.

Instead I believe that the price of oil, like the price of all the other storable commodities, and for that matter the dollar cost of a euro, is primarily responding to the Fed's decision to move the real interest rate strongly into negative territory.​

 

[vimothy]

Mummy, is this what an externality looks like?

The leaders of Bolivia and Peru have attacked the use of biofuels, saying they have made food too expensive for the poor. Speaking at the United Nations, the Bolivian president, Evo Morales, said the increased use of farmland for fuel crops was causing a 'tremendous increase' in food prices.​

* * * * *​

In recent years, we've heard that climate change could be catastrophic for nature and humanity. But it's becoming increasingly evident that over the next few decades, climate-change policies could prove even more catastrophic. ... Climate-change remedies can lead to greater poverty, starvation and disease, as well as widespread ecological destruction -- some of the very misfortunes that they're supposed to prevent. In our haste to address global warming, we have yet to think seriously about our policies' unintended effects. The results have been disastrous, and they're only getting more so.​

 

[IdleRich]

"If we look at the supply side of a commodity like oil, we can identify or at least concieve of various reasons that supply might not be able to meet demand. It might be the case that there's simply not enough oil in the ground to meet increased demand. It might be the case that we lack the refining capacity to meet increased demand. It might be the case that oil is located in countries with governments who use it as a political weapon. It might be the case that oil is located in countries that are too unstable to properly supply at optimal levels."

Sure, no-one could argue with that.

"As far as the peak oil thing goes, they seem to have been wrong so many times that it's like listening to the Jehova's Witnesses about judgement day. But maybe they'll be right eventually."

They almost have to be right eventually don't they? That's the problem, people think that if they keep saying they will be right one day but how do you actually pick the right time.

"I don't know, but it seems like industry people think that the oil is there but other factors are the problem."

Well, the big question is whether or not they are right. To me, the main problem will be if we act as if they are right but they turn out to be wrong.

"Instead I believe that the price of oil, like the price of all the other storable commodities, and for that matter the dollar cost of a euro, is primarily responding to the Fed's decision to move the real interest rate strongly into negative territory."

Interesting point. Not certain it's right but worth thinking about. If you simply wanted a hedge against the falling dollar though would you buy something that is priced in dollars?

 

[vimothy]

Well, the big question is whether or not they are right. To me, the main problem will be if we act as if they are right but they turn out to be wrong.

Yeah... gotta do more reading about this. Might try to post more stuff soon.

On a slightly more optimistic note, we should expect price signals to have some effect in the long term.

Interesting point. Not certain it's right but worth thinking about. If you simply wanted a hedge against the falling dollar though would you buy something that is priced in dollars?

Yeah, I think so, because the same mechanism that devalues your currency (inflation), inflates the nominal value of your asset. Even if you stay level in real terms, you've still escaped the devaluation of the dollar. It works with any tangible asset. And it gets even better if you fund your tangible assett with debt demoninated in the currency being devalued, because even if you stay level in real terms, the value of your debt is reduced by the level of inflation.

 

[IdleRich]

"Yeah, I think so, because the same mechanism that devalues your currency (inflation), inflates the nominal value of your asset. Even if you stay level in real terms, you've still escaped the devaluation of the dollar."

Yes, you can escape the devaluation but if your asset was quoted in euros (and increasing similarly in value as a commodity) you would be actually making money from that devaluation.

 

[vimothy]

Yes, you can escape the devaluation but if your asset was quoted in euros (and increasing similarly in value as a commodity) you would be actually making money from that devaluation.

Are you sure? I think the effect would be the same: you buy a barrel of oil at 60 euros (or whatever), which equals 100 dollars. Inflation pushes the price up in dollars to 200, even as it halves the value of the dollar. You sell you barrel for 200 nominal dollars and exit at exactly the same real dollar price.

Or am I misunderstanding you?

I think that hoardable commodities are the classic hedge against inflation and negative real interest rates. And, as Econobrowser points out, global economic output is actually slowing down, even as the world is adjusting to "run away demand" from emerging markets.

 

[vimothy]

Re Carioca: I just spoke to a friend doing exploratory work for a mining corp in Australia -- he said that most discoveries are announced as "inferred" rather than actual, and that they're not worth paying attention to.

Not sure which Carioca is though.