Agrimoney.com | China’s pork imports to ease from record, as domestic output grows

The top pork consuming country will see its imports ease, a bit, next year as the boost to domestic output from high prices works through

Source: Agrimoney.com | China’s pork imports to ease from record, as domestic output grows

The agriculture industry is going to have to begin to accept the fact that in the future China is not going to be the massive importer of food that it has been in the past. Unfortunately it seems that a lot of agribusinesses in the US, South America, NZ and the EU haven’t figured that out yet. This is especially true of the dairy industry which still seems to be betting the farm on the hopes that China will return to the days when it was importing all of the milk and milk products it could get its hands on.

For years now China has been pushing hard to improve its agricultural systems. It has been investing heavily in almost every type of agriculture, from grain production, to meat, to dairy, China has been putting a great deal of money and work into improving and modernizing its farming techniques. The ultimate goal of the country is to be at least 90% self sufficient in food production within the next ten to twenty years.

Whether or not China will succeed in reaching that 90% goal I don’t know. But even if they don’t, it will still have a profound effect on world agriculture. We’ve been treating China as a guaranteed market, a buyer of massive amounts of product that will always be there to help absorb our products. But it won’t. And the effects will be profound, as they were when China abruptly cut back drastically on milk product imports. The result from that was the price of milk and milk products plummeting by almost half, and the dairy industry still hasn’t recovered from that.

There will almost certainly be a China market, but it’s almost certain to be far smaller than it has been in the past. If agribusiness can’t learn to adjust, other agricultural sectors are going to find themselves in the same situation dairy is in now.

Merger Fever

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If you follow ag news you must be aware of the high profile mergers and buyouts going on in agribusiness. After months of trying to sell itself or merge with another agribusiness company, Monsanto seems as if it is going to be snapped up by pharmaceutical giant, Bayer, so the German company can increase it’s ag presence. Bayer is already a major maker of pesticides and snapping up Monsanto would give it a significant presence in the GM seed market as well.

It is not a done deal by any means. It still has to be passed by antitrust regulators both here and in the EU. There seems to be considerable resistance to the merger in Germany and in the EU as a whole, and a lot of politicians over there have been making disapproving noises.

This isn’t the only big ag merger going on, either. Dupont and Dow Chemical are in the process of merging, with the details still a bit up in the air. Swiss company Syngenta, which Monsanto had attempted to cut a deal with earlier, is being snapped up by the China National Chemical corporation, which is owned by the Chinese government. All four of these companies are major players in the agricultural chemical industry. (ChemChina seems to be on a buying spree. Last year it bought Pirelli, the Italian tire maker)

Mergers, acquisitions, buyouts, etc. aren’t anything new, especially in the ag industry. It’s been going on for ages. And generally the results, at least for the farmers, aren’t pretty. Over the years we’ve seen virtually every small, independent co-op, feed processor, seed maker, machinery dealer and independent mechanic be bought up, forced out of business or merged into ever larger semi-monopolistic businesses. And while competition has dwindled, farmers have fewer choices of where to go to buy seed, fertilizer, feed, chemicals and equipment, prices have, of course, skyrocketed.

The problem with all of these mergers is that they don’t seem to benefit anyone except a handful of investors, lawyers and, of course, the upper management of the companies themselves. They certainly don’t benefit the consumers, that is the farmers and you, the people who buy the milk, cheese, eggs, meat, vegetables and fruit that the farmers produce.

We used to plant 30 to 40 different types of soybeans in the US. Today, 90% of all the soybeans planted in the US are a single variety, produced by Monsanto. The fact that Monsanto has a literal monopoly on soybean seed isn’t the only problem with the situation. It’s the fact that we could be facing a very serious biological crisis. If a new disease pops up that this one variety of bean is susceptible to, the entire US soybean crop could be jeopardized because of this lack of genetic diversity. These monopolies have resulted in such a lack of genetic diversity in our agricultural systems that many of them now lack the genetic diversity to be sustained if a disease strikes them.

What these companies try to do, want to do, is lock farmers into a specific “system” of agriculture. You buy a specific type of seed to plant. That plant comes along with a specific program of herbicide and pesticide control systems, also sold by the company. Farmers do it because it’s easy. Sort of one stop shopping. They get everything they need from one vendor. And generally these systems are profitable.

At least at first. What generally happens is the company starts to get greedy. After releasing the system at a relatively decent price, the company starts ratcheting the price up once farmers get hooked into it. Prices go up until farmers realize the system isn’t all that profitable any longer. But by that time, well, they have such a heavy investment in the system they can’t really get out of it any more. Besides, where else are they going to go because the company has driven all of it’s competition out of business.

Farmers who want an alternative have enormous trouble even trying to find one. These semi-monopolies claim there is still a lot of competition out there. And it’s true that there are some competitors. But not many, and even fewer who could provide large scale farmers with the quantity of seed they need at a price they can afford to pay.

U.S. Bites Into Cheese Mountain With Stockpile Purchase (1) | Agweb.com

Milk glut has pushed dairy prices to lowest levels since 2009.

Source: U.S. Bites Into Cheese Mountain With Stockpile Purchase (1) | Agweb.com

The buy by USDA will do little to improve farmgate milk prices, and in the long run might actually do more harm than good by temporarily improving wholesale prices and thus encourage even more overproduction.

It has not been a good time to be a dairy farmer almost anywhere in the world over the last year or two. A variety of factors, including wide spread drought one year and China stockpiling milk products led to a dramatic upturn in the farmgate price for milk. And for a time dairy farmers were doing pretty darn good.

Unfortunately, it seems that everyone, including a lot of people who should have known better, seemed to think that this situation was going to continue into the future, that dairy prices would remain high, and that there were massive profits to be made if they expanded production. As a result dairy operations began expanding all over the world. The EU lifted its production restrictions, farmers added cows, processors began building new production facilities. Fonterra, the world’s largest dairy co-op based in New Zealand, was investing heavily in the Chinese dairy industry because it saw massive profits were just waiting.

Well, it couldn’t last. And it didn’t.

China wasn’t buying up milk products because it really needed them. China was buying because it was first of all, getting a really, really good price. It wasn’t using the products it was buying, it was stockpiling them against future price increases. Chinese consumption of imported milk products was also being driven by a series of serious food contamination scares, including the deliberate adulteration of milk by criminals with chemicals that made the milk appear to have higher protein levels in order to get higher prices. The adulteration resulted in hundreds, even thousands of people becoming sick and some even dying. Ventures into marketing milk products in Southeast Asia were failing badly. The Chinese themselves were investing heavily in domestic milk production. China hates being dependent on imported foods for obvious reasons, and has been trying to do something about it. Western style mega-farms were starting to pop up, supported by the government. China was also cleaning house internally, launching extremely strict monitoring of food production to prevent things like the milk adulteration horror. They actually executed people for that crime.

So while China’s imports of milk products was shrinking drastically, world wide demand was flat, production continued to expand.

And milk prices plunged.

My father often said that a lot of farmers were their own worst enemy. Unfortunately he was largely correct.

He was also enormously skeptical of government price support efforts, and he was largely correct there as well. While these government programs like this cheese buy are well intentioned, in the long run they only serve to make the problem worse by temporarily propping up market prices and encouraging over production. Once the program ends, the market ends up being worse than it was before.

 

Agrimoney.com | Farmland Partners unveils $197m land purchase – and plans for more

The group takes its portfolio of US land nearly to 100,000 acres – in a deal which will provide collateral for funding for more acquisitions

Source: Agrimoney.com | Farmland Partners unveils $197m land purchase – and plans for more

I’m beginning to wonder if it’s time to start to become worried about this trend. Farmland Partners is just one of dozens of investment companies buying up enormous amounts of farmland. Not to farm it themselves, but to turn around and rent it at the highest prices they can possibly get.

Given the volatility of the stock, bond and commodities markets, and the ridiculously low interest rates being paid by banks for standard savings accounts, the desire to invest in a fairly stable and relatively profitable venture like farmland is understandable. Farmland values do fluctuate, true, but not nearly as wildly as stocks and commodities. Compared to those ventures, farmland seems a fairly safe investment.

And a potentially profitable one because the land doesn’t just sit there, it gets rented for as much as $200 – $500 an acre, depending on local demand.

But I get very nervous when I see more and more farmland being concentrated in the hands of fewer and fewer owners, especially investment companies who have no vested interest in preserving the long term quality of the land, and only in making a return on investment. This practice makes it increasingly difficult for real farmers who want to get into the business to get started. Land has become so expensive in many parts of the country that it’s difficult or even impossible for a small start up farm to get off the ground without having the backing of outside investors.

Even worse, because the holding companies are going to charge the maximum rent they possibly can, those who can afford to rent the land are going to be forced to engage in the most intensive, potentially damaging, high chemical input farming techniques they can in order to maximize their own profits. This results not just in increased pollution from fertilizer, pesticide and herbicide run off, but also results in the degradation of the quality of the land and it’s fertility, causing even further reliance on intensive chemical intervention to continue to get the best yields.

Is this legal? Yeah. It is. At least in most states. Some states have restrictions on the amount of farmland that can be owned by out of state investors, but over the years those laws have been changed or even eliminated to permit companies like Farmland Partners to move in and take over. And I can understand the attraction. I own a fairly big stock portfolio, and the volatility of the market often makes me more than a little nervous. Farmland seems a far more stable, if a bit less profitable, investment for a lot of people.

While it may be legal and understandable, that doesn’t mean it’s the right thing to do.

Personally I feel the adverse effects of these companies; the artificial inflation of land prices, potential degradation of farmland, etc. outweighs the benefits.