Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
The relationship between oil and agricultural prices is actually somewhat more complex and ambiguous. The direction of causality is actually greater from agricultural commodities TO oil rather than the other way around, driven by fertilizer prices more than anything else. (I.e., natural gas -> fertilizer -> ag prices AND fertilizer -> oil)  Oil prices are almost always shown, empirically, to RESULT from changes in other commodity prices, contrary to the way most narratives assume happens.

Also, fuel is a significant but still not a very large part of the cost of agricultural production (less than 10% of total variable costs, if I recall).  So variation in oil price is going to be less important than the variation in the value the dollar and won't be a limiting factor regarding terms of trade.

by santiago on Sat Nov 7th, 2009 at 11:34:37 AM EST
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Natural gas prices are locked to oil prices (with a delay) under most contemporary contract regimes.

And the empirical relationships of the century of abundant oil may or may not apply to the century of scarce oil.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 7th, 2009 at 08:40:47 PM EST
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Contemporary contract regimes don't have a lot to with any of this. But yes, it is true that the relationships of a scarce future can't be so easily implied from those of an abundant past.
by santiago on Sun Nov 8th, 2009 at 12:44:34 AM EST
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FT.com / Commodities - Oil-gas price link to weaken

While oil has been transformed during the past 30 years into a vibrantly traded global commodity, natural gas trading remains fragmented, with prices in all regions but the US mirroring the oil price.

But that is all about to change, says the International Energy Agency. The looming surplus in gas supply is set to put pressure on the current market structure, helping gas to break from crude oil and trade independently.

The cost of West Texas Intermediate, the US oil benchmark, has risen 70 per cent since January, while Henry Hub natural gas, the country's benchmark, has fallen 22 per cent since the beginning of the year, bringing the divergence between oil and gas prices close to record levels.

Gas exporters are, nonetheless, reluctant to break the oil-gas link. Russia's state-owned Gazprom and Algeria's national company Sonatrach fear, the draft says, "a move away from oil-price indexation on the grounds that gas-to-gas competition would be more likely to result in lower gas prices".

Analysts say that gas exporters will fight to maintain the oil link and keep long-term contracts, on the assumption that revenues will be higher.

While the changes in pricing systems are likely to happen over time, the integration of the regional markets seems more distant. "The North American market may remain largely disconnected from the rest of the world," the draft says, pointing out that rising domestic supplies are displacing imports of liquefied natural gas.

"A truly global gas market - characterised by strong price linkages between all the main regional markets - is still some way off," the draft adds.

I believe that a global market in natural gas "Units" - issued by producers in exchange for fiat money or 'money's worth' and redeemable in payment for natural gas - may form the basis of an 'Energy Clearing Union'.

Supply arrangements, and 'spot' transaction prices, will be agreed bilaterally, but there will be a choice of settlement in fiat currencies, 'Units' or any other 'money's worth' acceptable to the seller.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Nov 8th, 2009 at 04:45:18 AM EST
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