The client responses to my recent series of China Notes have more numerous than for any such "think pieces" of the past, and they have been very helpful. Thanks! I have tried to answer all of them by email, but here are some of the best: - Quick response to Zhang. I don't think the Chinese can suspend the laws of economics and the competitive advantages of free markets and at the same time mandate intellectual creativity in a suppressive setting. What we see them doing is massive industrial and military espionage and coercive business practices and outright theft of intellectual property. -- That is some civilizational model.
- Pork prices vs. supply/demand analysis. If in China there have been no major pork production issues, then the short term reduction in consumption might be due to demand. But there could have been shifts between the pork value chain participants (wholesale vs. retail, etc.). It's hard to use retail prices to infer anything about per capita demand, especially long term.
- China's Crop Acreage and Agribusiness Structure. Makes absolutely no sense for a country as large as China to be held hostage to imports of their most basic protein source. Adopting GMO's, cutting corn acreage, increasing domestic meal production, and improving hog production efficiencies [will] all work hand in hand and make logical sense. (Hudson's answer was skepticism about whether the China Communist Party could ever actually "command" changes that make "agronomic sense.")
- Regarding the WTO, how can China get away with highly subsidizing corn acres while simultaneously filing bogus charges against the US for dumping DDG's? The US was under scrutiny with the WTO regarding $15-$20 per acre payments while it looks like China may be subsidizing corn acres in the amount of $100-$200 per acre. Is it because of a "developed" versus "developing" country or is it because they just do not regard the rules? (Email answer from Fred Gale, USDA-ERS China Expert: "Let's say the high level of support for corn in China has not gone unnoticed. China's WTO membership placed limits on subsidies. No one has challenged China on this yet, but it takes a while to put together a case like that."
- China's single child policy is now bearing its fruits in terms of an aging population and inverted age structure. (One of many comments about demographics.) Population growth will stall out due to a lack of young women and low birth rates. You mention that "episodes" have a beginning, middle and end. Population projections may provide insight into the end stage. David Goldman's book is grim but informative on this.
- Long-term Demand Expectations. I believe we've become conditioned (and perhaps rightfully so) to be skeptical of anything other than increasing demand from China. However, I believe that someday that trend is going to change, and the market's rationalization of that change in trend vs. embedded expectations will probably be painfully volatile, and may mark the beginning of the next era in commodity markets.
- COFCO. You have been focusing on the urbanization of the rural population and its impact on demand/supply for food commodities, but what are your thoughts on the action from the Chinese government to being more aggressive in regards to supply chain process and going directly to the source for these goods. What I'm referring to is the state owned entity COFCO, which not too long ago acquired Noble Agri and Nidera. Based on these acquisitions, they have assets in major producing areas, and are able to compete with the global ABCDs (ADM, Bunge, Cargill, and Dreyfus) that we know, actually in most cases they are right there with them, and how does such leverage impact the supply/demand? (Hudson answer: Seems like state trading organizations are more effective as sellers of commodities they control [like OPEC in the early decades], rather than buyers of commodities they need, but yes, PRX is very aware of the recent activities of COFCO, in the USA as well as the other main Export Hubs. China's investments in global grain/oilseed infrastructure could indeed affect North America's competitive position.)
Signup for the summer seminar has been good, and I look forward to presenting my full opinion on China Import Demand, plus US Biofuel Demand, and even maybe a little on the supporting politics. Remember what I said in China Note #5: Dictionary definition of "Opinion": A belief or judgment that rests on grounds insufficient to produce complete certainty.
Seminar registration is here. View the agenda here.
Bill
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Bill Hudson
The ProExporter Network
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