Free Market Commentary

By: Dan Hueber

This week the Committee on Foreign Investment (CFIUS) basically cleared the way for China National Chemical Corp. to move forward with its planned purchase of Syngenta.  Of course the proposed purchase was announced months back but still needed approval from various regulatory bodies and with this, CFIUS is basically saying they do not believe this presents any “security” risk for the United States.  This is not to say that the deal will not face hurdles yet ahead as the EU still has to provide its blessing and even US lawmakers could throw up roadblocks but it would appear to have taken a major step forward.

There are some who may assume that with the slowdown in the growth of the Chinese economy so had their appetite for expanding foreign investment, but they would be very mistaken.  Granted that has not been limited to agricultural ventures but this year alone the tally comes up to around $160 billion, which is larger than any other complete year on record.  In the Ag and commodity realm, since the bubble in 2007/08 China has invested globally in securing or controlling a number of commodities, including food sources and production and their appetite, no pun intended, appears to remain strong.   If you recall, back in 2013 Shuanghui International Holdings successfully purchased the world’s largest pork producer, Smithfield Foods, Cofco, the state backed Chinese grain trader has now completely purchased Noble Group.  Chinese Investment Corp (CIC), the sovereign wealth fund with over $800 billion in assets purchased a 12.5% stake in the Russian potash company Uralkali and it was also announced this week that Cofco and CIC will purchase the 49% stake in the Dutch grain trader Nidera, that they do not already own.  This final company is not a well-known name here in the US but they do operate grain facilities in the upper Midwest and a have a strong presence in Europe and South America.

I bring this up not to criticize these moves by the Chinese. It almost seems ironic though that it was only a couple years ago there was the breaking espionage news concerning the theft of experimental seeds in Iowa by various Chinese citizens in this country that was treated as a security threat. Now the US government is giving its blessing for the purchase of a major chemical/seed company but at least it is being done above board this time.  What I do find interesting is that as we hear story after story of downsizing and restructuring in the commodity/agricultural world, the Chinese are stepping up and taking on greater and greater ownership. I believe they as a nation understand and place value on the critical importance of food production and security, which is something in this country that many either take for granted or just do not understand.  Alongside this and probably just as important, they appear to take a very long-term perspective about the importance of such issues and investments and are not driven to appeasing stock holders with the latest quarterly returns.  So kudos to them for preparing for the future and making investments, or should I say, laying up treasures, that are in the essentials that actually sustain life.

While the results will not be tallied until the end of the week, it has been interesting to read the daily updates from the Pro Farmer crop tour that is ongoing this week.  At least at the periphery states, corn yields do not sound as if that are adding up to the same potential that the USDA came up with.  That may be too big of an assumption for me to make at this point but it is interesting to note that in his weekly update, Dr. Cordonnier commented that he felt there was more of a downside risk to corn yield than upside moving forward.  Of course at this juncture that market seems intent on binning a record yield but he also pointed out that a number of people have suggested the temperature profile this year has been very similar to 2010 and that year from the August report until the final in January, the projected yield dropped over 12 bpa or 7.4%.  As the great Yogi Berra would have said, “It ain’t over till it’s over.”