An Urban's Rural View

One of the most compelling moments at the DTN Ag Summit was Todd Hultman's riff on how the deck is stacked against American farmers when they play poker with China.

This year's Summit, the 14th, was virtual, but the presentations were at the same high level as those of the previous 13 live Ag Summits in Chicago. Among the many insightful ones were Ambassador Kip Tom's talk on innovation in agriculture and Ranveer Chandra's account of Microsoft's efforts to solve problems in ag analytics.

Todd Hultman's cogent, crystalline assessments of ag markets have been an Ag Summit highlight since he took over as DTN's lead analyst. This year was no exception. Todd has touched on the poker-game problem in some of his DTN writings, like this November 20 column (https://www.dtnpf.com/…), but in his Ag Summit presentation he tackled it head on.

The root of the problem is the lack of trustworthy information about China's feed-grain supply situation. Not knowing early enough that the Chinese had a shortage this year "really hurt us," Todd told the Summit. "It kept prices lower than they need to be and helped China get away with a bargain steal this year."

We didn't know about the shortage because USDA doesn't have a reliable assessment of grain supplies in China. China has provided supply and demand estimates, which USDA is unable to verify, and USDA lacks the resources to come up with its own. China's estimates didn't suggest a shortage.

So is this another instance of the sneaky Chinese taking advantage of Americans? Maybe not. Why the numbers inflated China's ending stocks is unclear. China's government may just have estimated badly; Chinese buyers and sellers rely on the same numbers, after all. It doesn't really matter, though. Intentional or unintentional, the effect is the same. Americans don't know when China is short and as a result China can import feed grains from the U.S. on the cheap.

For example, in recent months China was able to buy 583 million bushels of American farmers' soybeans for less than $9 a bushel and 870 billion bushels for less than $10. The current DTN national average cash price is well north of $11. The Chinese were able to buy corn cheap as well.

Now, many American growers are probably just glad China bought at all. Chinese purchases did push prices higher, after all, and some growers undoubtedly sold near the top. But if more Americans had known of China's shortages, more could have felt confident holding on to corn and beans and waited for higher prices.

Todd thinks this is a problem USDA should tackle. "The U.S. needs a better way of monitoring grain supplies in China," he told the Summit. "We currently have no credible insight for the world's largest feed demand customer of corn and soybeans."

While waiting for USDA to act, what can be done to get a better bead on China's supply situation? DTN's high-end Prophet X service now reports on the Chinese commodity exchange in Dalian. The rise in corn and soybean prices in Dalian earlier this year hinted at possible shortages, Todd said.

It was the price rise in another foreign country that first made Todd suspect a possible shortage. In early 2020 Brazil had a record soybean crop, which was followed by a record corn crop. Yet by mid-July, Brazilian FOB soybean prices were hitting highs and by late August corn prices were doing the same. Brazil looked to be short on stocks, suggesting Chinese purchases had been heavy.

There are worse things in the world than ignoring USDA and inferring supply and demand fundamentals from market signals. The DTN Six Factor methodology does that; the only government numbers behind any of the six factors are the Commodity Futures Trading Commission's reports on non-commercial traders' positions. DTN's analyst team uses the methodology to produce its well-regarded buy-sell recommendations on 16 commodities, the DTN Market Strategies.

No doubt Todd and his team will continue to find creative ways to read China and will continue to ignore what China's government reports and USDA repeats. Still, better data on Chinese fundamentals is needed. USDA ought to try to convince its Chinese counterparts to clean up their act or dream up a more accurate barometer of its own.

For as Todd told the Summit, "We can't keep affording to play poker where we reveal all our cards but require China to reveal none of theirs."

Urban Lehner can be reached at urbanize@gmail.com

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