Peak Oil? How about Peak… Everything?

"Dow 30,000" anyone?

Forever is one hell of a powerful word.

This is a little scary do to the fact that is nearly impossible to argue against it. The word "forever" though may be a little strong.

The UN did a study and predicted the by the year 2050 the population will taper out around 9.3 billion people. While another study said the population will hit 9 billion by 2070 and then actually begin to decline.

So while I disagree with the forever part I do agree that we will definitely see a steady rise in prices for years to come.

That is of course assuming there is no unfortunate incident that would significantly reduce the population.

I think we've already been "policing our own" population with reduced birth rates amongst developed nations. This will curb the perceived shortages that loom in commodities and food.

I think that commodities and food prices will continue to rise to the point that they discover their relevance versus consumption, extracting the maximum possible return from consumers.

My take is that everything will go up, but gradually. The days of cheap stuff are largley over, and now consumers will really have to think about where they spend their money.

"...There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin."

I cannot argue with the first point, we have nearly maximized the productivity of land, however Grantham (along with all of the other notorious commodity longs of 2008 and today), continues to ignore human innovation. There are countless projects currently researching food production everywhere from the oceans to enclosures in the cities.

I also cannot argue his second point, but it makes a dangerous assumption. How can we assume people will continue to get richer, particularly if these occasional shortages are expected to slow economic growth? He touches on the subject, with his "...China may stumble" comment, but overall he assumes that the population will grow, and people will get richer. Birth rates have declined substantially in the west as a result of weak economic growth. The emergence of "Emerging Markets," is primarily due to global corporations taking advantage of an aritrage opportunity in labor. As previously imporverished laborers get richer (eating grain intensive meats and living energy intensive lifetyles) shipping costs will rise usurping the labor savings, effectively closing the arbitrage opportunity. It isn't any different than convertible-debt arbitrageurs bidding up the price of the debt, and driving down the price of the equity until the window closes; its just lager and takes longer.

Finally, I have a sneaking suspicion that easy money has a lot to do with the rise in commodity prices. Agricultural commodities had a legitimate reason to rise in price given the confluence of bad weather events this year. The rise in agricultual commodities led to the "Arab Sprng" revolutions, and then Oil prices began to rise, and metlas prices returned from a correction. The first place the Fed's cheap money goes is to guys like Grantham...even mediocre asset managers can get leverage for 25 bps from one broker to use as their collateral on 5:1 levered commodity contract with another broker. The sky is not the limit as resources become stretched people get poorer. When Americans went broke 3 short years ago commodity prices eventually plummeted.

Do you really believe the BRICS et al, with less than 10% the GDP/capita of the West, will take rising prices in stride and continue to consume?

horrible argument things will 99% of the time be more expensive in the future this is nothing new

im more impressed with people who can predict short term movement

also this is a pefect exampl of adopt or die...couldn't change your beliefs about housing? then you died.

A long-term 'long' on food and agricultural prices is a sensible position. However, you are also betting against another Norman Borlaug, or more simply the ability of sub-saharan Africa to be able to make its huge land resources productive.

Interesting discussion though. I tend to find arguments based wholly on demographics often underestimate the ability of the planet and humans to develop and adapt to change.

Jeremy Grantham is a great writer though and alongside Howard Marks is someone I will always read cover-to-cover.

Commodities should come down, but even if food prices continue to rise...it's good for us. (Ignoring secondary issues like political stability abroad) We are one of just a few countries with a food surplus.

I can't say I am convinced we will see another green revolution. The anti franken-food crowd in the western world has made it pretty difficult for government to fund that research. And Monsanto et al will not exactly be pushing development of a "cheap food" cure all.

Almost every forecast shows birthrates reaching an equilibrium in the next 100 years. It might mean we will no longer be able to buy dollar burgers, but ~9 billion certainly seems feasible, especially if we start utilizing the ocean for farming / fish farming more efficiently.

The commodities run-up is so heavily linked to central bank manipulations that this is hard to take seriously.

Commodities are the next asset bubble.

The developing world might have growing populations but Europe is poised to drop into a demographic winter.

The developing world NEEDS the population surplus because they need cheap labor. You have to sweat your way out of poverty.

The whole article is a worthwhile read. He has some interesting facts in the report.

What about the idea of "peak oil", referring to peak of demand? Do you think we are moving to a world where elastic crude oil demand is shifted towards other sources of energy?

Nice read.

Can anyone help me find some more articles on macro topics? Not short enough like news items and not too complex like white papers but something in the middle like this article.

Supply & Demand

We won't have shortages. We will have higher prices.

Veritas speaks the truth. We still subsidize farmers because supposedly they don't make enough money. If crop prices go up, supply will go up.

The best cure for high commodity prices is high commodity prices.