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What if China stops growing?
China's Gross Domestic is higher than a lot of analysts thought it would be when the nation's leaders reported it Tuesday. But, it's still trending the opposite direction, and any larger hiccup in the Chinese economy -- macro or agricultural -- could make its way to your farm's bottom line fairly soon.
China's National Bureau of Statistics released economic data Tuesday that shows the nation's GDP grew by 9.2% in 2011 over the previous year. That number -- to which the grain markets have been closely attuned -- beats a lot of analysts' previous estimates, but continues a trend of sliding GDP values for China. Chinese officials peg the nation's 2011 GDP at 47.16 trillion Yuan (around $7.46 trillion).
China's population is still growing; Tuesday's report shows growth is slow, though, at a rate of just shy of 5 per 1,000 residents per year. That puts the nation at 1.347 billion people. For the first time in China's history, there are now more people in cities than in rural locations.
And, the average Chinese adult's income is growing. Per-capita household income was up more than 2,000 Yuan in 2011 over the previous year, up 8.4%. So, there are more Chinese citizens with more income at their disposal than there was a year ago, 2 statistics that could have major implications to the ag commodity markets.
"As China expands, they need a lot more milk, grain and hogs to expand, and we need good weather to continue," says Terry Roggensack, market analyst and trader with The Hightower Report in Chicago. "God forbid we get bad weather in China; are the free markets going to work well or is China going to come in and buy the grain markets?"
But despite growth in the nation's grain production, the country's growth in livestock -- the consumption of which, at least, is expected to grow as individual incomes start to rise -- hasn't kept up with grain production. While grain output was 4.5% higher, total pork, beef and poultry production was just 0.3% higher, with pork production alone dipping slightly lower.
So, there's a lot of room to grow in China's livestock sector. What happens if and when China decides to ramp up its protein production? "There's a big push in China to expand that production in the coming year," says trader and market analyst Jerry Gidel of North America Risk Management Services, Inc. "I think [U.S.] soybean exports could be doubled if that hog number comes across as Chinese officials want it to come across."
What exactly does that herd expansion mean to the grain market? As of last week, the U.S. had 848 million bushels of corn carryout, Roggensack says. But, even if China just wants to up their hog herd by 10%, it will take more than that to make it happen.
"The real situation that could change is if China has bad weather that impacts crop size. We're not in a situation where world has enough grain to take care of that situation," Roggensack says. "Keep in mind a 10% increase in the hog herd in China will take an additional 1 billion bushels of corn."
That means the chances are good, Gidel adds, of heightened volatility in the U.S. grain markets at least in the next few months on account of China's influence in a world marketplace that's already being strained by low production in South America.
"We have issues with soybean damage in South America. Soybeans could be more exciting and be more volatile for the coming year. Right now, we're getting banged down on production, but there's a lot of uncertainty out there that could create some volatility and opportunity," he says.