Soybeans

If one just reads the headlines, one would think American farmers are on the ropes. However, looking at the above chart (source: CNBC), one can see that things are not quite as bad as supposed. Add to this the fact that Trump has pumped tens of billions of tariff-collected dollars into US agricultural subsidies ... and that China has just agreed to import more US pork and soybeans ... farmers here may be doing a little better than OK ... not what the media are saying.

Lessons: Kind reader, at a moment in time there is only so much food in the world ... and always look behind the headlines ...

Hog Wild

Trump’s trade war is causing pain among American farmers ... particularly soybean growers. China uses soybean meal to feed its hogs ... which are a major source of protein for its people. In response to Trump’s 25% tariffs, China has imposed retaliatory tariffs on US soybeans, among many other things, which would transfer much of this soybean trade to Brazil and Argentina.

But there is a rub ... as indicated recently by Secretary of Agriculture Purdue, China is in the midst of a devastating African swine fever epidemic which has killed as many as 200 million hogs ... or 1 to 2 times America’s entire pork output ... see: Washington Post Article. This suggests that China really needs far fewer soybeans than in times past ... but, if our trade war settles down, could import enormous numbers of slaughtered hogs.

So, if China were interested in feeding its people, American pig farmers could raise many more hogs for export and use our glut of soybeans to feed them. That is, if China were rational ... which it doesn’t appear to be.

Headlines

Pressure mounts on Northam over racist yearbook photo

Russia suspends Cold War-era nuclear deal after the US pulls out

[VA Gov.] Northam now tells Dems NOT him in [racist]photo?

Black Monday: GM to lay off 4K white-collar American workers

Congress tunes out Trump's border wall threats

A democracy win in Venezuela would be hugely significant for a world gripped in rising autocracy

Venezuelan general urges military to disavow Maduro ...

[David] Brooks: 'I'm more appeale' by Northam's abortion comments

Is Cory Booker for real?

China's COFCO buys million tone batch of US soybeans

Scandals loom over Bolsonaro after first month in office, 'It smells dirty' ...

Trump: 'People are dying all over the country' because of Nancy Pelosi

Soybeans

China has matched the U.S.'s intended $50 billion of tariffs causing a trade-war panic in the financial markets (see the featured posting on the left). The two key products threatened by China are airplanes (Boeing) and soybeans ... see: CNBC Article to understand the hysteria that gripped the stock market early yesterday. So, are China's tariff threats to be taken seriously?

Let's start with Boeing. The purchaser of airplanes in China is the government itself ... so there is little pain for them to take money from one pocket and put it in another. And secondly, "if it ain't Boeing, I ain't going" means that China would be very reluctant to lose its place in line for plane deliveries given the tightness of this marketplace. Conclusion: an empty threat.

Next soybeans ... here are some key soybean send soybeans meal statistics: USDA Soybean Stats. Note three things from this data: 1) over the last five years soybean prices have been falling precipitously, 2) allocated acreage and total production have been growing (the likely cause of falling prices) and  3) China is by far the largest buyer of US soybeans (9x the next biggest). So clearly US soybean farmers have a lot at stake if their Chinese market dries up.  However, so do the Chinese who use the soybean meal to fatten its huge population of pigs ... and much of the soybeans themselves for human consumption. A 25% tariff on U.S. soybeans would be a tax on Chinese consumers.

The 64K yuan  question is: Could the rest of the soybean growing world (primarily Argentina and Brazil ... see: Exports by Countries) ... pick up the slack from any falling U.S. exports.? Possibly, but because of a drought in Argentina, world supplies of soybeans and soybean meal are back in short supply. Resides this is harvest time in South America ... meaning the US. Has most of the high cards, at least for a year, in this poker game.

Overall conclusion: the Trump administration might well call China's bluff in this dueling tariffs contest ... particularly if we are willing to compensate any damaged industries.

Afterward: Many pundits feel that China, because it is central-planned capitalism, would have a natural advantage in a trade war. Maybe so. However, market-driven capitalism like the U.S. iterates to the best solution ... which takes longer and can be more painful than China's. However, if China gets it wrong to start, there is very little market self-correction ... which can be disastrous.

Frankenfoods

GMO stands for genetically modified organism or any living thing that has had its genetic material altered using genetic engineering techniques ... see: Wikipedia Entry for much detail about this process. The purpose of these genetic alterations in plant foodstuffs is primarily to enable them to resist disease, pesticides and insects ... or better tolerate environmental stress. Some examples of foods that have been so altered are corn (insect resistance, etc.), wheat (drought tolerance, etc.), and soybeans (survive saline conditions, etc.). Monsanto has been a leading developer of such products with its Roundup Ready line of products.

Obviously genetic engineering is akin to natural evolution only on a vastly compressed time scale. In nature, genetic mutations occur as a matter of course ... with good ones surviving and bad ones being selected out. Genetic engineering speeds up this process with (hopefully) good intentions. But as could be expected there has been a public backlash against such Darwinian tampering  ... with the term "frakenfoods" being the pejorative used to turn the public against such scientific advances.This public aversion is similar to the hysteria that now surrounds vaccinations and that which once pushed back against the use of fluoride in drinking water. In both cases there seems to be a very small risk associated with a very large public benefit. To me, this same cost-benefit trade-off also applies to GMOs.

However, GMOs have apparently now become a real bugbear ... with marketing hucksters now using the banning of foods containing GMOs as a selling advantage, The most recent example of same is Chilpolte Mexican Grill which now brags that it will phase out meals that contain GMOs ... see: Organic Connection Magazine Article. This is easier said than done as huge amounts of worldwide acreage is now devoted to growing GMO crops (see the above-referenced Wikipedia article) and many nearby non-GMO fields have also been cross-pollinated by such plants. And since the testing for GMOs is not easy and cheap, it is quite likely that much of this marketing hype is just that ... empty claims ... see: USA Today Article..

So until such time as Al Gore travels the country with his PowerPoint presentation decrying the evils of frankenfoods, I'm not going to fret too much about this newest GMO way to feed mankind.
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