China’s recent attempt to slow its economy sent shivers down the spine of North American crop markets in the past two weeks.
But many market observers doubt China’s attempts to rein in inflation, even if successful, will significantly crimp its demand for prairie crops and meats.
“It’s a nice story, but there’s absolutely nothing behind it to suggest we’re going to see any lowered amount of buying in agricultural commodities,” said analyst Rich Nelson of Allendale, Inc. of McHenry, Ill.
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“It’s a good psychological story for the next month and a half, but it’s not going to take away the bull market.”
And for the longer term, even a reduced growth rate in China wouldn’t significantly hurt that country’s demand for basic foodstuffs, said Kenrick Jordan, a senior economist with Bank of Montreal.
“Even if China were to have a recession, or the developing world to have a recession, I think the underlying momentum for any type of consumption is going to be faster growth over the long term than in developed countries,” said Jordan.
North American crop markets sold off after China’s announcement that it planned to increase reserve requirements at its banks to subdue its growing inflation, especially in food products.
The announcement, the second raising of reserve levels in two weeks by the Chinese government, sparked a selloff in Chinese equity markets and coincided with a slump in North American crop prices, which had been rallying to one and two year highs.
Beijing also announced specific crackdowns on speculation in agricultural markets and mused about imposing price controls on certain essential foods.
China is a major market for Canadian crops and meats but many observers think China’s attempts at restraint won’t wean it off imports.
“Our statistics show that they’re increasingly reliant on oilseeds from around the world,” said Jim Everson, the Canola Council of Canada’s vice-president for corporate affairs.
“They need it.”
Jordan said several long-term trends make China likely to continue to increase its need for imported foods.
The country has a rising population, the population is becoming more urban and per capita consumption remains low compared to rates in the developed world.
That suggests China will consume more of the agricultural products prairie farmers produce.
“I think with respect to food commodities, the risk is less for more than one reason,” said Jordan.
Nelson said China has a growth rate of about 10 percent. If it slows to seven or eight percent, it will still need more grains and oilseeds.
“That’s still ravenous growth,” he said. “I don’t think it is going to lower agricultural consumption one bit.”
The markets have been knocked off their bullish course but that’s just a correction in a longer term bull market and won’t last into the new year.
“For 2011, it’s hard not to be bullish based on supply and demand fundamentals,” said Nelson.
