cancel
Showing results for 
Search instead for 
Did you mean: 
Senior Advisor

Disagree on China

I've watched China for years. I don't believe they are 'faking'. They have an entirely different approach to grain and they have been consistent. But they take a much longer view and are proactive when it comes to controlling internal prices.

 

First, the Chinese are very adamant regarding 'food security'. Not just for now, but for years into the future. It is  a 'national security' concern based on recent and past history. There's also a practical concern of the volatility of global markets if they were dependent on global stocks from year to year. I saw a remark just the other day that if China's food production was reduced by 5% in a year it would take 20% of globally traded grain to make up for it.

 

China is most comfortable with 6-12 months of supply on the major grains, perhaps excepting soy (they've mad a strategic decision on soy to import, not be self sufficient, related to water usage). The inventory has two distinct uses. One is as the traditional flywheel of food stability hedging against production short falls. The other is for intervening in domestic market supply price spikes by holding 'snap' auctions to introduce an element of risk to those who might bet on higher prices and withhold food from the market place and assure users that the government will assure a supply at a reasonable price. By the way, 'hoarding' is a criminal offense whose definition is whatever the government says it is.

 

The government can hold an auction and make sales below market price while simultaneously import to keep inventories up. This would be an illogical position in a free market situation - which China is NOT in many ways. Some mistakenly interpret the idea that China is auctioning or importing as either having plenty [or] running low. It may be neither. China does not run inventories to the bottom. They import WHILE maintaining supplies. The one thing to count on - China will replace inventories if they hold internal auctions. But they maintain enough cushion they can act strategically.

0 Kudos
Contributor

Re: From the floor April 20

So the word for the day was Bullish? 

0 Kudos
Frequent Contributor

Re: From the floor April 20

What happend at towards the end of the session?   Mpls went ended down when it was up $.24 at some point.  Did weather change all of a sudden or guys taking profits before the Easter weekend./?

0 Kudos
Veteran Advisor

Re: From the floor April 20

Palouser,

 

I think it's important to separate out strategy vs. tactics when discussing the Chinese.

 

I fully agree they take a longer view in managing their ag resources. However, they also employ the "usual and customary" grain marketint tactics when faced with certain situations. For instance, when crush margins deteriorate, and the boats are stacking up, it's not unusual to find "something wrong" with the sample.....net/net, it forces the shipper to pay the demurrage or re-negotiate some terms.....in the end, it's a math issue based on daily demurrage, etc.

 

This issue with the phantom 172-175 MMT corn crop was just another piece of fiction...they needed/wanted to buy corn and were just trying to talk the market down....

 

regards 

0 Kudos
Veteran Advisor

Re: From the floor April 20

I'm told an improved weather outlook pressured corn. So, I checked with Freese-Notis. They say though the 6-10 day outlook remains wet and cold, the 11-15-day outlook is showing maybe more normal-to-slightly above normal vs. significantly above normal rainfalls. There was also profit-taking ahead of the Easter Holiday break.

 

Mike

0 Kudos
Veteran Advisor

Re: From the floor April 20

reubencbd,

 

Keep in mind that the market was bullish for 9/10th of the time. Traders often say, it's not how we trade, it's how the market closes. Improved extended weather and profit-taking turned a mostly bullish trading day into a bearish close for corn and wheat. The weaker dollar helped the soybean complex.

 

Mike

0 Kudos
Veteran Advisor

Re: From the floor April 20

Here's a telling stat that the market might want to grasp. The University of Minnesota Research Center reports Wednesday, "Measurable precipitation has occurred on 12 of 20 days so far this April. Soil moisture measurements taken this week indicate soils are saturated at 100% of field moist capacity."

 

Where's Al Kluis's comment on this? Al, you have your ears on? You farm in southern Minnesota. And you are also a marketing expert. What will that data, above, mean for futures prices? Just curious.

 

Mike

0 Kudos
Senior Contributor

Re: From the floor April 20

I am not Al but just south of him in NC Iowa with 100% saturated fields. Without any rain it will take mostly a week to dry fields enough to plant. Some will go sooner but our heavy black dirt fields take time to dry. With the current forecast showing rain on this Friday and next Tuesday, we will be lucky to get anything done the first week in May. We need an extended forecast that has above temps and below precip to have any optimism...MikeM

0 Kudos
Senior Advisor

Re: From the floor April 20

I do agree that they 'can't resist' at times from using excuses, but by and large their patterns are very consistent. In other words, I think serious traders in physical understand those patterns.

 

What I see more than the Chinese talk is floor traders, farmers etc. interpreting indicators in the Chinese markets as if they were a totally free market, which they aren't. Specifically, ideas that government sales are an indication of plenty and buying as a sign of immediate need. They always make sure they have enough, and when it comes to soy, and maybe corn and even wheat (at some future point), they will be buying more. But, by using large stocks as a buffer they have room to act strategically.

 

 

0 Kudos