By John DePutter & Dave Milne – June 13, 2017
“The combination of more mouths to feed with even faster-growing wealth in the world’s most populous nation has made China a magnet for farm goods, especially from the US, which now sells more of its harvest to China than any other country.”
– Bloomberg, June 12, 2017
What it means:
On the surface, this is a good news story. But it’s also a worrying one.
As most farmers already know, China’s voracious appetite for farm commodities has been one of the single largest demand factors that has helped keep some farm markets afloat, particularly soybeans. As the Bloomberg article points out, the $48.3 billion of bulk agricultural commodities that China imported in 2015 was more than that of the next four largest buyers – Germany, the US, Japan and the Netherlands – combined.
But as most farmers – and country music singers – also know, nothing good ever lasts forever. A major portion of the South American and US soybean industry has been built on the foundation that China will remain a major buyer for years to come.
Admittedly, China’s imports are not likely to ever grind to a complete halt. But one could still only imagine what would happen if China were to substantially slow its soybean imports in the wake of record 2016-17 South American production and another big crop in the US this year: US supplies would back up into the country, ending stocks would balloon and prices would collapse.
It’s the inherent danger of relying too much on a single buyer.
No country is ever completely immune from economic or geopolitical shocks, and there’s no telling what could happen tomorrow, never mind six months to a year from now.
As the Bloomberg article also warns, China is expected to begin losing population by mid-century, and economic growth is already slowing, meaning it is becoming increasingly important for the US and other big producers to search out the next big thing when it comes to export demand.
Main message: Careful about building expectations around China’s demand.
A great, historic commodity boom based in part on China’s demand for crops peaked long ago. The glory years were 2008 and 2012. For some crops the party was still going in 2013. It’s over now. China’s massive demand is old news. Commodities have settled down; crop futures have settled down.
Sure, China will need food. And yes, China will be an important, often-leading buyer of the grains and oilseeds grown in Canada.
Just don’t build a cash-crop farm expansion plan around ideas of booming demand by China or a resurgence near the boom peak heights.
To help keep up on China’s and other demand factors, read our weekly Market Advisory Service newsletter.
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“Over the past 25 years, Brazil has grown from just another agricultural producing country to the main agricultural competitor of the United States. During the 25-year period from 1990 to 2014, the acreage of Brazil’s three main crops, soybeans, corn, and sugarcane has increased 106.8%.”
– Soybean & Corn Advisory (www.soybeansandcorn.com)
What it means:
The expansion in Brazil is a big story for agriculture.
Brazil is a powerhouse producer. Brazil’s massive soybean crop is a big reason soybean futures are down near $9/bu, almost half what they were at the 2012 historic peak.
The country also has a huge corn crop on the way.
Brazil’s production success has come not only from a more-than-doubling of acreage of major crops the past 2 ½ decades but also better and better yields. Over the past 25 years, the average soybean yield has improved by more than 50% and the nationwide average corn yield has more than doubled.
It brings to light a fallacy of the 1980s. Some readers will remember it was common to hear farmers and others in agriculture repeat the adage “buy land – they’re not making any more of it.”
Truth is, there was more land created for farming – a lot more – in Brazil.
Need help navigating the markets amid rising Brazilian production? Check out Ag-Alert.
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