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Thread: Global Food Price Inflation Kicks In - China Releases Corn / Rice from Gov't Reserves

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    Default Global Food Price Inflation Kicks In - China Releases Corn / Rice from Gov't Reserves

    this latest news announcement has the makings of a 'Black Swan' ... from


    (snip)"Last week we wrote an article that to many was anathema: namely an explanation why everyone is deluding themselves in their expectation that the PBOC would ease, soft, hard, or just right landing notwithstanding. The reason? The threat that food inflation is about to read its ugly head which is "Why The Fate Of The Global Equity Rally May Rest In The Hands Of Soybeans." This was merely a continuation of our observations from a month ago that as a result of the Black Swan being "deep fried" in 2012, that the threat of food inflation will keep key BRIC central banks in check for a long time. As of today the threat has become fact, because as China Daily reports "China will release corn and rice from state reserves to help tame inflation and reduce imports as the worst US drought in half a century pushes corn prices to global records, creating fears of a world food crisis...The release may prompt Chinese importers to cancel shipments in the near term and take some pressure off international corn prices, which set a new all-time high on Friday as the US government slashed its estimate of the size of the crop in the world's top grain exporter." Sure, as every other short-termist measure the world over, it may help with prices in the short-term, but will merely expose China, and thus everyone, to the threat of a much greater price spike in the future. Because just as the strategic petroleum reserve release did nothing to help gas prices, nor the short selling ban in the US and Europe did anything to help the underlying broken financial system, so this will merely force the local population to scramble and ration whatever food they can get asap, now that the government has admitted there is, indeed, a food inflationary problem.

    Sure enough:

    Bottom line - rationing is in full force, and given the continually declining state of the US corn crop, more will be needed," said Christopher Narayanan, head of agricultural commodities research at Societe Generale.

    China's State Administration of Grain did not specify the volume of corn or rice to be released from reserves. The Grain Reserves Corp will be responsible for selling the crops, but no details were given on the timing.

    Some traders estimated the government might sell around 2 million tons to help stabilize prices ahead of the harvest, when supply is usually tight.

    Beijing will probably need to replenish reserves towards the end of the year, and therefore the release will have only a limited impact on prices.

    "It can help stabilize the market somewhat, but the volume is too small compared with the 10 million to 15 million tons of monthly consumption nationwide," said Xu Wenjie, an analyst with Zheshang Futures Co.

    "With USDA raising its Chinese corn production estimate ... it certainly makes sense to release some corn from reserves," Narayanan said, noting that the USDA also cut its estimate of Chinese corn imports by 3 million tons to 2 million.

    One thing is now certain: with China openly admitting it is scared about the impact of food price inflation, one can forget not only PBOC cutting rates but engaging in far less effective RRR cuts. In fact reverse repos will be the only form of easing for a long time.


    Which brings us to our conclusion from last week:

    Barring some last minute miracle, with Soy prices set to surge on a Y/Y basis, and drag Chinese food inflation with them, will the PBOC ease, and add to incremental food demand, just as supply considerations are about to send Chinese food inflation soaring?

    Of course not (naturally, this assumes the wheels of the global economy do not come completely unglued, in which case all bets are off).

    So there you have it: a PBOC whose hands are tied, an ECB whose hands are tied, and a Fed whose hands are also tied (there is of course the BOJ but nobody cares about the BOJ any more).

    And still the market keeps hoping and praying that despite, or maybe due to, collapsing corporate revenues, and lower corporate earnings guidance, that central banks will come in and save the day. Alas, by now it is more than clear that any discount capacity the market may have once had, is now as gone as trading volume, the VIX, and bank trading profits."(snip)


    The arguable take-away from this news / analysis is that any planned co-ordinated central bank actions to 'print money' in an effort to prop up stock market prices / real estate prices will instead spill over into higher prices for globally traded commodities i.e. food, energy, industrial commodities, precious metals etc. These rising prices for 'necessary items' will divert customer spending away from non-'necesssities' as well as reduce profit margins for businesses, thus retarding whatever lukewarm economic recovery might have arguably been underway.

    A few pundits are already making the argument that declining retail sales figures for the past 3 months provide evidence that any economic recovery is already over. We'll see if the latest retail sales numbers ( due out today ) continue the trend.
    Last edited by Melonie; 08-14-2012 at 03:46 AM.

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    Default Re: Global Food Price Inflation Kicks In - China Releases Corn / Rice from Gov't Rese

    Retail sales for July were up .8 %. BUT so were wholesale prices. Much more than anticipated.

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    Default Re: Global Food Price Inflation Kicks In - China Releases Corn / Rice from Gov't Rese

    ^^^ Unfortunately, the Bloomberg 0.8% number isn't segregated into total dollars spent on 'necessary' items like food and energy and clothing, versus total dollars spent on 'non-essential' items. I should have specified. This obviously goes along with the scenario that rising prices for 'essential items' are 'crowding out' consumer spending on 'non-essential' items. And for better or worse, increased spending on food and energy and clothing have less direct positive impact on the US economy than decreased spending on restaurant meals, lap dances etc. have direct negative impact.

    The other point is consistent, however. Wholesale price inflation / increasing 'input' costs to businesses etc. are starting to draw negative attention. And this restricts the ability of the central banks / US FED to 'print money' without introducing a significant risk of additional food / energy / commodity price increases cancelling out the supposedly stimulative effects of said 'money printing'.

    it should also be pointed out that the one and only reason that the July retail number was positive is due to an unprecedented 'seasonal adjustment' being applied by the gov't. This is already being dissected by certain pundits ... such as


    (snip)" So what would have happened if instead of arbitrarily deciding to add a seasonal contribution for the first time in a decade, the Census Bureau had used the last decade average factor of $5.2 billion (not adjusted for inflation, so the end number would be far greater)? Instead of rising by 0.8% Seasonally Adjusted retail sales would have declined from $400.7 billion to $395.5 billion, or a 1.3% decline.

    And that is how data is fudged.





    Those curious what the model behind this now glaringly obvious seasonal adjustment fudge is, read on (source):

    We use the X-12 ARIMA program to derive the factors for adjusting data for seasonal variations and, in the case of sales, for trading-day and holiday differences.

    Adjustment of estimates is an approximation based on current and past experiences. Therefore the adjustments could become less precise if current competitive pressures, changes in consumer buying patterns during holiday periods, and other elements introduce significant changes in seasonal, trading-day and holiday patterns.

    Each month for sales, concurrent seasonal adjustment uses all available unadjusted estimates (including the latest preliminary and advance estimates) as input to the X-12 ARIMA program. Factors derived from concurrent seasonal adjustment for sales are applied to the unadjusted advance, (one month after the preliminary) preliminary, and final (one month before the preliminary) estimates and to the previous year estimates that correspond to the advance and preliminary months.

    The table Combined Seasonal, Trading-Day, and Holiday Adjustment Factors for Retail and Food Services Sales by Kinds of Business presents the combined seasonal, trading-day, and holiday adjustment factors that are used to adjust sales estimates. For kinds of business whose last observation is an advance estimate, two months of projected factors are shown. For all other kinds of business, three months of projected factors are shown. Projected factors are estimates of the factors that will be used to derive adjusted estimates when unadjusted estimates become available."
    (snip)
    Last edited by Melonie; 08-14-2012 at 10:35 AM.

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    Default Re: Global Food Price Inflation Kicks In - China Releases Corn / Rice from Gov't Rese

    more on the gov't change in 'methodology' for seasonal adjustments ... from


    (snip)"Retail Sales data was released Tuesday and on the surface the headline data was a pleasant surprise. Expectations were for a rise of .3% but the number came in at .8%. One very sour note was June data was revised to -.7% from -.5% which was a bummer. But the real story was in a new calculation method by the census bureau (ably assisted by the Bank of Spain…I kid you not) changed their methodology for seasonal adjustments as noted HERE & HERE. Without this adjustment the data would have showed a -.9% decline. This follows along with all the adjustments made in the CPI (released tomorrow) since 1980 that made inflation data always look better ultimately and Employment data with birth/death adjustments.

    Other data released today included the PPI (.3% vs .2% expected & prior .1%) and Business Inventories which fell (.1% vs .2% expected & prior .3%)"(snip)

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    Default Re: Global Food Price Inflation Kicks In - China Releases Corn / Rice from Gov't Rese

    And industrial production was UP for July.

    Let's see what the revised numbers are a few months from now.

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    Default Re: Global Food Price Inflation Kicks In - China Releases Corn / Rice from Gov't Rese

    ^^^ yeah no s#!t regarding 'rosey' estimates in the headlines, followed by downward revisions on the back page once the real numbers can't be denied ... see the CPI / Empire Manufacturing Survey thread !

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