'Massive' sale to China

[John_Walter]

Item just on the newswire of word that China bought 780,000 tons of soybeans.  "China is likely increasing buying as insurance against potential crop losses in Brazil and Argentina," said Tim Hannagan, analyst for PFG Best.  Jan soybeans traded up 13c to $12.52 a bushel on the news. -- John

[jrsiajdranch]

I bought two months worth of SBM this week and had it delivered cause i can not take this see saw any more today makes it look like a good decision.  403 to the farm and a fuel surcharge to boot!

John also thanks for this site and all your hard work.  I have family coming in and don't think I will have time to post anything much more after today.  BUt again I do appreciate this site. JR

[marketeye]

John,

Nice find here. This is interesting. After China was talking about cooling off their economy, tightening fiscal policy, raising reserve levels for banks, and calling on more lending for ag related businesses to further secure food supply, it comes out with a huge purchase of U.S. soybeans. This backs up the thought a trader said to me the other day. He said, "I follow 28 different markets and I think China is giving us a head-fake on all of them."

And as we all know, China gives head-fakes better than any other trade partner. The truth of the matter is they have over 1.0 billion people and a bunch of livestock to feed and they don't have a 'food store' big enough to fulfill their needs. Talking down the market used to work better, when their consumers weren't demanding higher protein diets. It appears things have changed to the point that head-fakes are losing their punch. We'll see, they still remain the best traders in the world.

Mike

[Palouser]

There was NO head fake!

The only fake was trader's predictions that cooling off the economy meant less business with China as a result of restricting credit. It is the classic mistake of assuming food fits neatly into the industrial model - and it doesn't. I've pointed this out several times.

China can both cool off the non food commodity aspects of its economy while maintaining or INCREASING imports - which their policy dictates. The government maintains food inventories, and sells stocks at auction to knock down peak prices in an effort to keep food inflation low. This is their MO. If fits their priorities. And it's been completely predictable.

[jrsiajdranch]

Pal here is something interesting from ole China.  If they are letting this out how bad is it really?  I also read another article but I can't find it now that stated the sentral Gov. was expanding their food stamp program as folks were having a hard time affording food.  The cost was minimal per family but taken times 300 million people it came out to an additional billion dollars a week in funding for food! 

BEIJING, Nov. 21 (Xinhuanet) -- Though measures have now been taken to prevent further price hikes, many people remain concerned over the rising cost of food. With consumers searching for ways to cut daily expenses, officials from the National Bureau of Statistics' economic monitoring center say there's no need to panic.

Pork, up 1.6 percent; mutton, 0.5 percent; eggs, 0.9; and rice, 0.6.

The Ministry of Commerce says these are the prices for the week ending November 14th.

But an official with the National Bureau of Statistics says it's only part of the picture.

Pan Jiancheng, National Bureau of Statistics, said, "The current level of inflation is driven by soaring food prices. The basic supply and demand situation remain unchanged, with production surpassing consumption. What's happening in China will not turn into a broad-based price rise."

To some extent, Pan made his point.

In October, the Price Index for transport and communication dropped by 0.5 percent, and the index for clothing dropped by 1.3 percent.

In other sectors such as home appliances, entertainment and services, the index rose only slightly.

But with incomes remaining relatively stable, 4.4 percent is driving buyers elsewhere.

Chung Ying Street is on the border between Hong Kong and the Mainland.

In the 1990s, Mainland tourists would flock here to buy foreign goods, mostly watches and jewelry.

Today, the street is reviving, with mainlanders getting packs of sauces and instant noodles.

Officials warn while searching for value for money, consumers should remain calm.

Pan said, "Madness against anticipated price rises is even more fearful than the actual price hike. Overseas speculators can smell that fear and turn it into reality. And this is what the government is trying to prevent from happening."

Pan says the key is to guide inflation expectations in the right direction.

He says China has sufficient food reserves and enormous vegetable supplies.

And that, he says, will ensure stable prices at a reasonable level.

(Source: CCTV)

Will they have any other choise than us? 

Also read where for the first time ever India actually ran out of butter and cream products in Oct. There are some big populations that are going to need to be fed and we maybe the only store open for business for awhile. JR

[k-289]

Let's hope they don't throw livestock under the bus any further for the time being ! ! If China want's to do business they might want to look at the Asian political objectives and problems that they could help the US shoulder ? ? 

[Palouser]

The problem with inflation is that the individual isn't in control. The effects of inflation spill over into food as more money needs to be made to take care of shelter and other needs. Inflation in food, contrary to the general industrial model, implies shortages of the basic commodities, which is apparently not the case in China. But to dampen price the central government imports in order to have auctions to compete with private holders of stocks, to threaten hoarding, which is a basic tendencie of a supplier who haS stocks.

Both India and China have economies that are growing quickly. Both have adequate food, but pent up demand from a growing middle class increasing their standards of living. Both populations have known and see privation. Both have adequate food stocks. But the psychology is a matrix and hard to ignore.

But analysts and traders here continue to rely on mistaken interpretations of what is going on because they know little about the policies of these countries, relying on industrial models of supply and demand - which simply do not apply straight across when it comes to food commodities and government policies. And I think it is also an over reliance on unreliable technical perceptions.

India's issues with butter and cream are probably a reflection of the need for cooking oil, and they are one of the world's largest importers. Cream and butter in India are raw materials for making ghee (clarified butter), a traditional form of cooking oil (and a reason their food is often rich). The dairy industry in India is very decentralized. You will see the same water buffalo herd going down the same street to the river on their own to join their bretheren in the river for most of the day. In the afternoon you will see them chugging up the street toward home where they are fed and snubbed for milking, And again in the morning before returning to the river. Similarly cows roam the neighborhood acting as the needed garbage service. Everyone knows who the owner is. Everyone benefits.

Yes, the world benefits from our 'over production', and we will provide. At the moment our very important role as necessary exporter is highlighted.

[marketeye]

If I'm not mistaken, China started the recent drop in soybean prices by announcing economic slowing measures. I realize you can remove the punch from the party and still have a party. But, some of those folks will leave, once the punch has been removed. China knows that when they announce this stuff, the market will react, and it did. If it wasn't a head fake, why didn't China buy 780,000 metric tons of soybeans two weeks ago, when the market was rallying? Do you think this great demand showed up overnight? The head fake is in their playbook. They know it works and they will keep running the play until the market can stop it. Just a few thoughts.

Mike

[Palouser]

You are missing my point.

China DID announce measures to cool off the economy. They did NOT announce they were going to buy less soy as a result. The two were not connected - there. They did not announce the measures for the benefit of soy. They have bigger fish to fry. The policy is that ample food flows to China regardless of other measures.

The downturn in prices resulted in reactions HERE, due to misperceptions by analysts and traders HERE who predicted an effect on China soy purchases. This was because the traders and analysts HERE don't understand China policies regarding food. My position was that China would continue to buy because I've watched the consistency of Chinese food policy. It was an easy call.

The fact that Chinese buyers might have profited from our misperceptions is just what happens. Why wouldn't our fears trigger their purchases (by the way, these were multiple smaller purchasers if I have my info correct)? They were going to buy anyway. There is not going to be a slackening of demand from China for soy for any reason this year.

[marketeye]

Thanks for the further details. I do see what you're saying. China's economic announcements have been sparked by a lot of factors and unprovoked by soybean purchase plans.

By the way, this talk that Argentina and Brazil's soy crop is threatened, due to weather seems premature. But, then again, the market trades fear before fact. So, maybe I shouldn't be surprised.

Mike