Weekly Commodity Update

The below URL is a weekly commodity update courtesy of my colleagues at FCStone. It's a good read and provides a quick recap on the week that was. Download the file at: http://www.fcstone.com//UserFiles/File/weeklycommodityrecap.pdf

Weekly Commodity Update

The below URL is a weekly commodity update courtesy of my colleagues at FCStone. It's a good read and provides a quick recap on the week that was. http://globecotnews.com/files/globecotnews.com/20090922commodityrecap.pdf

A Creative Solution for China's Soybean Problem

First, let’s remember China (most nations actually) has an obsession with grain production and self-reliance on food production. And, it loathes the fact the nation must import 35 to 40 million tons of beans every year. Worse, it knows this number will continue rising each and every year. Still, there are millions of soybean farmers producing an estimated 15 mmt each and every year to contend with. So, what to do with those beans? From my last trip, it seems China’s government may be moving to a situation where that entire lot is first purchased by the reserves every year and then crushed by one state owned company sensibly located somewhere in the northeast.

When the theory was first explained to me, I had a million questions but the more I put I arms around it the more I began to understand. Getting the 15 mmt in the hands of one company will for the moment help the government first solve the issue of the soybean farmers and their annual production. Second, if nothing else China’s government is incredibly creative and will devise a scheme whereby the crushers in the northeast will be consolidated into one massive unit and remain state owned. Further, they eventually may allow this theoretical unit to increase capacity over time and include foreign soybeans. Remember, too, that currently foreign crushers are at least on paper not allowed to increase crushing capacity. What’s worrying about this is almost overnight a major crushing entity emerges with unrestricted access to a very large amount of soybeans.

Again, this is mere conjecture at the moment but what is not is the government’s sincere desire to maintain price control for farmers as well maintain strong role in the very important soybean crushing arena.