EPIBuilding a Sustainable Future
Lester R. Brown

Chapter 2. Beyond the Oil Peak: The Falling Wheat-Oil Exchange Rate

While we focus on the oil used to produce food, the amount of oil that food will buy is falling precipitously. The shift in terms of trade between wheat and oil is both dramatic and ongoing. From 1950 to 1973, the prices of both wheat and oil were remarkably stable, as was the relationship between the two. At any time during the 23-year span, a bushel of wheat could be traded for a barrel of oil in the world market. (See Table 2–1.) 32

Since 1973, however, the relative values of wheat and oil have shifted dramatically. In 2005, it took 13 bushels of wheat to buy a barrel of oil. The two countries most affected by this dramatic shift are the leading exporters of these two commodities: the United States and Saudi Arabia. 33

The United States, both the largest importer of oil and the largest exporter of grain, is paying dearly for this shift in the wheat-oil exchange rate. The 13-fold shift since 1973 is contributing to the largest U.S. trade deficit in history and a record external debt. In contrast, Saudi Arabia—the world’s leading oil exporter and a leading grain importer—is benefiting handsomely. 34

While the exchange rate between grain and oil was deteriorating, U.S. oil imports were climbing. During the early 1970s, before the OPEC oil price hikes, the United States largely could pay its oil import bill with grain exports. But in 2004, grain exports covered only 13 percent of the staggering U.S. oil import bill of $132 billion. 35

The first big adjustment between oil and wheat came when OPEC tripled the price of oil at the end of 1973. During 1974–78, it took roughly three bushels of wheat to buy a barrel of oil. Then after the second OPEC oil price hike, which boosted oil from $13 per barrel in 1978 to $30 in 1980, it took eight bushels of wheat to buy a barrel of oil. 36

This steep rise in the buying power of oil led to one of the most abrupt transfers of wealth in history. The coffers of Saudi Arabia, Kuwait, Iraq, and Iran began to overflow with dollars while those of oil-importing countries were being emptied.

No one knows exactly what will happen to the wheat-oil exchange rate in the years ahead, but as the number of grain-based ethanol distilleries producing automotive fuel grows, the profitability of converting grain into fuel may stabilize the wheat-oil exchange rate.

The United States is pressing the Saudis to produce more oil. Yet the answer is not for the Saudis to produce more, even if they can, but for the United States to consume less. Unless the United States assumes a leadership role, Saudi Arabia will continue to dictate not only the exchange rate between oil and grain but also U.S. gasoline prices.


Table 2–1. The Wheat/Oil Exchange Rate, 1950–2005
Year Bushel of Wheat (dollars) Barrel of Oil (dollars) Bushels Per Barrel (ratio)
1950 1.89 1.71 1
1955 1.81 2.11 1
1960 1.58 1.85 1
1965 1.62 1.79 1
1970 1.49 1.79 1
1975 4.06 11.45 3
1980 4.70 35.71 8
1985 3.70 27.37 7
1990 3.69 22.99 6
1995 4.82 17.20 4
2000 3.10 28.23 9
2005* 3.90 52.00 13

*2005 figures are author’s estimates based on January–August data.

Source: See endnote 32.

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32. Data for Table 2–1 compiled by Earth Policy Institute from International Monetary Fund (IMF), International Financial Statistics, on-line database, ifs.apdi.net, updated September 2005; IMF, International Financial Statistics (Washington, DC: 2005).

33. IMF, on-line database, op. cit. note 32; IMF International Financial Statistics, op. cit. note 32.

34. U.S. Census Bureau, “U.S. Trade in Goods and Services,” at www.census.gov/foreign-trade/statistics/historical/gands.pdf, updated 10 June 2005; IMF, on-line database, op. cit. note 32.

35. Value of grain exports and oil imports from U.S. Census Bureau, Foreign Trade Statistics, “US Imports of Crude Oil,” at www.census.gov/foreign-trade/statistics/historical/petr.pdf, viewed 29 July 2005; USDA, Foreign Agricultural Service (FAS), U.S. Trade Internet System, online database, at ww.fas.usda.gov/ustrade, updated July 2005; U.S. oil production and consumption from BP, Statistical Review of World Energy 2005 (London: 2005).

36. Value of grain exports and oil imports from U.S. Census Bureau, op. cit. note 35; USDA, op. cit. note 35; U.S. oil production and consumption from BP, op. cit. note 35.

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