Dim Sums: Agricultural Markets in China

An article from the China grain net detects weakening rice prices as a big new harvest comes on the market. The author of the article speculates that the government will try boost prices by increasing procurement for state reserves. The author notes the influence of the government on prices. Early-season rice harvested this summer opened with a relatively high price after harvest, but it fell when government procurement tailed off. In Hunan, Hubei, Chongqing, and other areas of the south where grain reserve depots have been procuring rice the price for middle-season rice is about 0.9 yuan/jin or higher. In Sichuan, the price is about 0.9 or lower--the weak prices there are attributed to government aid (rice) pumped into the region affected by earthquake, pushing supply beyond demand. In the northeastern provinces, rice has just started coming on the market. The author anticipates a similar pattern of high opening price followed by a decline unless the government decides to support pri...

Cotton has been one of the hottest agricultural import items since China's WTO accession. Much of this cotton is manufactured into garments that are re-exported. The slowing U.S. economy may be slowing the Chinese export machine. A Sept. 24 article reports that blazing growth of textile exports slowed in August to just 2.8% above year-earlier exports. Textile/apparel exports grew 12% in 2007 and that was down from over 20% growth in 2006. The slow-down in textile demand combined with burgeoning domestic cotton supplies translates to a slowing of cotton imports. Cotton imports were down 27% year-on-year in August. Domestic cotton is in excess supply, especially in Xinjiang autonomous region in China's far west (the biggest cotton-producing region). According to railroad statistics, in 2007 cotton transported from Xinjiang totaled about 2.93 mmt, about 8.7% higher than the previous year. Approaching the end of the current market year, by the end of august Chinese cotton enterpris...

A Washington Post article on the current financial crisis points out the major role of Chinese funds in the Wall Street meltdown and provides more evidence of the symbiotic relationship between the U.S. and Chinese economy. It is estimated that China has a fifth of its foreign exchange reserves invested in $400 billion of Fannie Mae and Freddie Mac securities. Chinese banks have billions more invested in teetering Wall Street firms. The article points out "the Industrial and Commercial Bank of China, for example, has $151 million in bonds issued or linked to Lehman; China Merchants Bank has $70 million of Lehman bonds; and the Bank of China has $75.62 million of Lehman bonds." Wall Street is now reaching out to Chinese investors, asking them to provide a needed infusion of funds. Isn't most of China's foreign currency reserves already in U.S. assets? Why would Chinese investors want to pour good money after bad? One of the big investments made by China's sovereig...

According to the Ministry of Agriculture (MOA), the national average pork price slid below 10 yuan per jin for the first time this year. It is now generally recognized that this is a typical hog price cycle (but with greater amplitude than usual). In Henan, prices started to shoot up May 18 of last year. The peak price was around February of this year (just after the spring festival). Prices have been slowly falling since then and seem to be dropping faster now as more signs of oversupply become evident. Currently (September 2008), prices are about 2 yuan below their peak and at about the level they hit in August 2007. People thought prices would pick up at the mid-Autumn festival but prices kept falling. Profit margins are getting slim. Farmers report that prices are nearing the break-even level where their profits evaporate. According to monitoring of 3600 large and small hog farms in 20 provinces, hog inventories were up 10.6% in the first half of the year, slaughter was up 4.8%, an...

Illnesses due to tainted milk powder now exceed 6,000 and 3 deaths. Powder from the biggest dairy companies in China have all tested positive for adulteration with melamine. Test results showed melamine present in samples of 69 products from 22 brands of milk powder tested, 14% of the products and 20% of the brands tested. There were 87 brands that were free of melamine in the tests. According to the State Council , there are 175 milk powder producers nationwide, of which 66 have stopped production. The 69 products that tested positive are not allowed to leave the factory. All 11 Sanlu brand samples tested positive with far higher concentration of melamine than any other brand. The two biggest companies were not free of melamine but were not among the worst performers: Yili had 1 out of 38 samples test positive and Mengniu had 3 out of 28 positive. Sanlu's concentration of 2563 mg/kg was much higher than 68.2 mg/kg for Mengniu and 12 mg/kg for Yili. The vice-secretary and mayor of ...

Over 1,250 (so far, the number keeps rising day by day) babies have become sick and two have died from consuming infant formula adulterated with melamine—a chemical derived from coal. This scandal combines elements from two of China’s biggest food safety incidents. You’ll recall that the big publicity about food safety problems with Chinese food imports started in 2007 when dog and cat deaths were linked to melamine. China’s watershed domestic food safety incident came in 2004 when a series of babies died from malnutrition due to fake infant formula that had little nutritive value. The latest problem is centered in Gansu Province in western China where babies had been showing up at hospitals with kidney stone problems since March or April of this year. The link among the cases was that all the babies consumed the same brand of milk powder. According to the Chinese Xinhua article of Sept 11 , the condition found in the babies is usually the result of poor nutrition typically found only ...

This year I've gotten a lot of inquiries about Chinese agricultural data from individuals whose email signature sounds like some kind of investment firm. They are usually interested in statistics on meat consumption. I don't ask questions, but one individual told me his boss wanted a list of Chinese companies to invest in. I think another was working on a major investment in Chinese poultry that was in the news recently. I infer from this that agriculture, especially anything that has to do with or can be influenced by Chinese demand for meat, is the latest investment fad. There have been several big investments in Chinese livestock industry in the news lately. An article in the Aug 31 Washington Post seems to confirm this trend toward ag investments and notes that the shine has quickly rubbed off farm-related stocks. Many of "the smartest guys in the room" working in investment houses and banks have never been through a big agricultural boom and bust before. They may...