Market Matters Blog
Katie Micik DTN Markets Editor

Wednesday 06/18/14

No Hard Landings, More Ag Investment

It's difficult to overstate the importance of the Chinese when it comes to American agriculture. Soybean farmers happily recite the statistic that one out of every four rows of beans grown in the U.S. are sold to China. They also buy large amounts of corn and DDG (although the recent Agrisure Viptera spat slowed that trade), not to mention cotton and other commodities.

A pair of headlines on China caught my attention this morning. The first: "Chinese Premier Li Keqiang Promises No Economic 'Hard Landing' Amid Strong Business Confidence" from the International Business Journal. The second: "China's sovereign wealth fund shifts focus to agriculture."

The state of China's economy is a perpetual concern. If it were to slow dramatically, or experience a "hard landing," many economists figure the country's demand for ag products would drop precipitously. China's shown over the last six months that it's willing to take a lot of targeted measures to keep its economy rolling.

The International Business times reported that Li said he expects the Chinese economy to grow 7.5% this year.

"China's economy is slower than the past, but normal," Li said in the IBT article.

"Despite considerable downward pressure, China's economy is moving on a steady course. We will continue to make anticipatory and moderate adjustments when necessary. We are well prepared to defuse various risks. We are confident that this year's growth target will be met."

You can find the whole article here: http://bit.ly/…

China's leaders appear confident about their economy, and that's a good think for U.S agriculture. China's also looking closely at its long-term strategy. The country's leaders know the middle class is growing, and it will consume more dairy, grain, meat and vegetable oils than ever before. China's future food security needs played a strong part in an opinion piece in the Financial Times on Tuesday.

The chairman of China Investment Corporation, the country's $650 billion sovereign wealth fund, explained why agriculture is a solid long-term investment and will be a growing share of the country's portfolio.

"The world has no shortage of fertile land and every prospect of meeting that target. But the crops will not plant themselves. Meeting the world’s need for food will require long-term investment -- which, in developing countries, will have to increase by as much as 50 per cent from the current level," his opinion piece stated. (You can view the entire article here: http://on.ft.com/…)

The piece went on to say: "China Investment Corporation is a long-term financial investor with a diversified portfolio. We believe the agriculture sector offers stability, a way of hedging against inflation and a device for spreading risk. We are keen to invest more across the entire value chain – in partnership with governments, multilateral organisations and like-minded institutional investors – in areas that will help to unlock the industry’s potential, increase the food supply and offer attractive returns.

"While we are focusing on existing assets, we are also keen to work with the right partners to invest in greenfield projects."

China's previous investments in Africa and land purchases in South America encountered plenty of scrutiny. The acquisition of Smithfield Foods by Shuanghui raised mountains of criticism and skepticism about China's motives. If China follows through on its plan to ratchet up its agriculture investments, more controversy is sure to follow.

(CZ/AG)

Posted at 2:22PM CDT 06/18/14 by Katie Micik
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