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JXK
Senior Reader

Managing aggregate farm risk

We, as North American farmers, are now highly dependant on a single buyer in China.  The MBA's would call this buyer power.   Micheal Porters book on strategy is a good read if ur interested.   Having this concentration from one buyer increases the risk to your operation.  As an interesting fact, China now represent over 60% of the global soybean trade.   The Canadian Canola farmers experienced the problem with this last year when China decided the canola was contaniminated with Black leg and banned most imports.   China's command economy is unpredictable at best.  At worst elements of the government are directly involved in the commodity trade.

 

Personal opinion-  I am skeptical of the Chinese miracle.  Inflation is caused by the increase in the money supply.  Chinese inflation has been driven by a government propping up a lagging economy by printing money.  The loosening of currency controls is just a way to extend foreign currency reserves that are rapidly being depleted.  This is the opposite of the appreciation on the Yuan most are expecting.   The Chinese have quitely out printed the US and EU??   Facts and figures from China are made up by the government.  We will have no warningn if or when the bubble burts.

 

I think risk are increasing caused by concentrated buyer power in combination with higher input cost.  It begs the question of how I manage long term risks.  Debt cost, debt load,  forward contracting are on my mind this AM.

 

 

 

 

 

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5 Replies
Santiago
Contributor

Re: Managing aggregate farm risk

agree with porters view on china big power on buying..........but to see the other way is that China has a big problem cause they are obligated to buy from the us, brazil or arg...........they can not change the product now (at least there is no other product who can have similar proteins and similar quantity to feed chinese)

 

with that big buying power they can change the price on the short term....since on the long run they have to buy beans from US, Brazil or Argentina..........so on the long term they can not use that buying power unless thecnology will give them other choices

 

also china is the biggest investor in US bonds, economically are they not owners of a big part of the us treasury?????? or not???

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k-289
Senior Advisor

Re: Managing aggregate farm risk

I can remember in late 70's and 80's when Japan was going to buy US out---Pebble Beach- Empire State Building---

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patriot3031376
Veteran Contributor

Re: Managing aggregate farm risk

Don't over analyze the situation. China needs our grain as bad as we need their demand. They are the reason we still have $10 cash beans.

 

Why are you (and some others I respect also) so sceptical of the Chinese economy? If they fail so does everybody else.

 

Debt load and foward contracting are always on my mind. I fear the supply side much worse than the demand side of this equation.

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Artifice
Senior Contributor

Re: Managing aggregate farm risk

I wouldn't call N american farmers dependent on a single buyer.

 

The mkt is broad.

 

Primary, its simple economics, high prices attract prodiuction.

 

Less about managing risk more about when to make decisions?

 

In low price periods, lock in a 3 yr lease on lease acreage.

 

In high price eras, forward price 20% 2 and 3 yrs out.

 

Things like that.?

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Artifice
Senior Contributor

Re: Managing aggregate farm risk

Yes, you hear some bis to China be9ing done, cooperate, sell some into it, help them get satiated.

 

Lately, the mkt tops on each Chinese sale.

 

SArtifice

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