Chinese companies buying U.S. businesses (Grain Marketing)
(Editor’s note: John Hall is a professional commodities analyst.)
I feel compelled to share a few more items about China while I am on a roll.
For those who are not regular readers, I began this discussion back in February.
I plan to compile a summary upon the conclusion if you pitched an issue or two.
Over recent years, several U.S. businesses moved to China to capitalize on their cheaper production costs that include labor costs and apparent lack of environmental concerns.
However, because there is no free speech, we seldom hear the real story.
“You often see representatives from American companies with financial ties to China naturally become defenders of the CCP’s policies and spreading the CCP’s propaganda,” said Helen Raleigh, an author and senior contributor at The Federalist who emigrated from China. “The financial tie means these Americans will be much less likely to challenge China’s human rights record or unacceptable demand such as technology transfer.”
True or false, several current U.S. politicians have been accused of accepting funding from the Chinese.
For example, did Hunter Biden really get $40 million?
I must applaud the Chinese people. They have been great students.
It would appear they have been much better students of progress than we have been.
Twenty years ago, “Made in China” meant cheap. Today, that is not the case.
Over the years, the Chinese have become ruthless competitors who only play by their rules.
If morals and fair play do not exist, one can understand how different it must be.
Under communism, it would appear progress is much easier to attain when objection is not tolerated.
Should we be concerned?
I suggest you watch the documentary “The American Company” on Netflix.
It is about a Chinese company that bought a closed General Motors plant in Ohio in 2014 and converted it to produce auto glass.
Fuyao Glass America currently employs more than 2,000 workers and is a world player in auto glass.
This documentary clearly shows the difference in allegiance, culture and work ethic between the United States and China.
An article written by Marty Schladen for The Columbus Dispatch on Feb. 27, 2020 entitled: “Oscar-winning ‘American Factory’ leads to scrutiny of Chinese-owned Dayton-area factory” exposed our society differences.
The article stated that “Federal and state officials are reacting to possibly illegal treatment of workers in a Chinese-owned factory in the Dayton area that was exposed in the Academy Award-winning documentary American Factory.”
How many other U.S. companies does China own?
Do you remember the sale of Smithfield eight years ago? Smithfield Foods was founded in Virginia in 1936, and its pork products are ubiquitous in U.S. supermarkets, but the company was actually bought by WH Group, formerly known as Shuanghui International, for $4.7 billion in 2013.
Smithfield became a subsidiary of the publicly traded Chinese corporation after the Committee on Foreign Investment in the United States said the acquisition would not endanger national security.
For further details, you can find that article published May 8, 2020 entitled: “Is Smithfield Foods owned by China?” by Evie Fordham FOXBusiness.
If you watch “The American Company,” you will chuckle from the CEO’s comments about Smithfield found in this article.
“We have established Smithfield as the world’s leading and most trusted vertically integrated pork processor and hog producer, and are excited that Shuanghui recognizes our best-in-class operations, our outstanding food safety practices and our 46,000 hard-working and dedicated employees,” Smithfield’s CEO at the time, C. Larry Pope, said in a statement. “We do not anticipate any changes in how we do business operationally in the United States and throughout the world.”
Again, you need to watch “The American Factory” to understand the possible “truth or untruth” in this statement.
April 27 appeared to be a significant date for grain marketing.
On this day the markets showed a huge correction.
Have the speculators gotten too bullish? Have we reached a market top?
The May corn futures closed at $6.92 on April 29, down from $7.20 high on April 27.
New crop December corn closed at $5.46 down from $5.92 reached on April 27.
May beans closed at $15.65 on April 29 down from over $16 two days prior.
New crop November beans closed at $13.26 also down from $13.84 on April 27.
July wheat followed the same pattern and fell from $7.68 to $7.25 on April 27.
What do we expect this time of year? Volatility!
I sure hope you have made some sales for new crop.
As Paul Harvey used to say: “now the rest of the story.”
1. Planting is on schedule. USDA crop progress report released April 26 had corn planting at 17-percent complete, just under the 20-percent, five-year average.
This planting rate suggests yields will be trend line plus. Soybean planting increased to 8-percent complete which is slightly over the 5-percent, five-year average. Spring wheat planting was 28-percent complete.
2. The spring weather — temperature and moisture — appears to be normal at this time.
3. There were reports that second crop corn in Brazil got some much needed moisture this past week.
4. Now for some cold water in the face:
• Last week after releasing quarterly earnings, ADM’s CEO suggested they expect to see a 5 million increase in combined corn and soybean plantings over USDA’s March 31 Prospective Plantings report. Allendale has been assuming a 3 million increase split between plus-2 for corn and plus-1 for soybeans.
• Last week there was talk of Perdue shipping beans from Brazil, which is a sign that beans from Brazil can be bought at much more affordable levels than beans from the United States.
• Feed usage is a huge usage for our feed grains. Feeders are constantly modifying ingredients to maximize returns. When corn prices get high, feeders look to substitutes.
Last week I asked you about marketing some new crop at the current prices.
Again, I assume several of your that did contract last spring got an upset stomach when delivering corn at current prices and said never again.
I suggest you rethink that mindset. If you do not want to contract, at least establish a price floor using a “put” option.
A “put’ option can give you a price floor and still offer upside.
(Note: I research material from Allendale, DTN, USDA, University Land Grants and other credible sources in compiling this article. It is not merely my opinion, but rather a consensus of experts in the trade. Looking for a marketing coach or someone to discuss strategies with? Contact me at firstname.lastname@example.org, or call 410-708-8781.)