Wednesday, May 26, 2010

China and Agriculture

Hugh Hendry of the Eclectica Fund is one of my favorite investors/thinkers and recently came out with his May letter which can be found here. The reason I like Hugh so much is because he thinks way outside of the box, very witty, and most importantly always talks about market history that I am unfamiliar with and haven't seen anywhere else.

His latest letter talks alot about Japan and China and why he thinks China is going to go bust. All very interesting and something I generally agree with. What was really interesting was the last two pages of the letter when he starts talking about soft agriculture commodities like corn and soybeans and openly wonders if there isn't something going on secretively in China. He talks about huge droughts in China and lower fertilizer usage at the same time the government is reporting very successful agriculture years. Of course the real canary may be prices (aren't they usually?). He points to the fact that in Dalian, a port city east of Beijing, corn is selling for more than $7.50 a bushel. More than twice of that in Chicago. He thinks talks about China's history (something I had never heard anywhere else) of how they manipulate agriculture data and how it caused starvation and death after the 1950s.

Anyway, I am basically bearish on asset prices everywhere but if I was forced to buy something, agriculture would be the one area I would be interested in. The case made by Hugh makes it that much more appealing.

As a result it was interesting looking through world papers that I found this from the China Daily.

China's National Development and Reform Commission (NDRC) said Monday it will curb speculation in farm produce, prices manipulation, and supplies monopolies, and investigate criminals when severe market disruption is spotted.

The NDRC said specific definitions and punishment are currently being discussed, China Securities News reported Tuesday.

Prices hike were seen this year in rice, grain, garlic, vegetables and green beans, possibly because of the drought in Southwest China and the cold weather in Central and East. The soaring prices are also believed to have been caused in part by hoarding, market manipulation, and rumors by unscrupulous traders

Interesting. Of course this sounds like the government blaming the market for prices they don't like even when they cause it. Sound familiar? Anyway, something to think about. If you had to buy something corn at 3.70 a bushel sure looks appealing.

No comments: