Deep Fried Black Swan Lands As China Admits It Has A Food Inflation Problem, Releases Corn, Rice From Reserves

Tyler Durden's picture


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.

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Mon, 08/13/2012 - 17:13 | 2702024 Robot Traders Mom
Robot Traders Mom's picture

The G-20 is getting ready to have an emergency circle jerk.





Mon, 08/13/2012 - 17:21 | 2702059 I think I need ...
I think I need to buy a gun's picture

black swans grey swans and white swans i'm waiting on the golden goose

Mon, 08/13/2012 - 17:29 | 2702081 camaro68ss
camaro68ss's picture

Just have the bernake print some corn and soy. duhhh

Mon, 08/13/2012 - 17:31 | 2702088 john39
john39's picture

soylent green...

Mon, 08/13/2012 - 17:36 | 2702103 Ahmeexnal
Ahmeexnal's picture

Deep FLIED Black Swan....they always serve that at the chinky buffet.  But somehow I always think those "Black Swans" look more like....rats.

Mon, 08/13/2012 - 17:57 | 2702143 FEDbuster
FEDbuster's picture

Maybe they can tap their reserve of US T bonds to buy some corn and soybeans from us?   Fill those shipping containers going back to China.  Americans are too fat anyway, time for a little waistline austerity.

Mon, 08/13/2012 - 18:02 | 2702157 SWRichmond
SWRichmond's picture

MOO / DBA, still in my portfolio.

You guys didn't get suckered into selling off your Ag stuff, did you?

Mon, 08/13/2012 - 19:39 | 2702420 economics9698
economics9698's picture

9% growth rate minus 9% inflation rate, uh we are fucked.

Mon, 08/13/2012 - 18:10 | 2702181 AldousHuxley
AldousHuxley's picture

it is chicken drenched in fake soy sauce (caramel coloring + salt).


go to panda express.



Mon, 08/13/2012 - 19:16 | 2702354 Atlas Shrugged
Atlas Shrugged's picture

Actually, the food inflation in China is very mild when you factor in the proper hedonic adjustments such as substitution.

For example; people who used to eat dog now eat cat; people who used to eat cat now eat rat. Everybody who was eating rice is now eating plastic rice, and the best thing about plastic rice is that it can be recycled.

Now you see that people are theoretically no worse off because of substitution. They are still eating the same quantity of food and not paying much more for that quantity.

Mon, 08/13/2012 - 20:30 | 2702544 AldousHuxley
AldousHuxley's picture

but now they are unhappy because they know that there is something better to eat out there.

so yes substitution can happen but not without loss of mental happiness which may lead to social instability.





Mon, 08/13/2012 - 22:10 | 2702824 fourchan
fourchan's picture

bernake cares not about food or energy skyrocketing.

Mon, 08/13/2012 - 23:39 | 2702967 Atlas Shrugged
Atlas Shrugged's picture

How I long for dog...

Mon, 08/13/2012 - 23:54 | 2702983 Element
Element's picture

The only question is; are they likely to (again) imitate/emulate what the West traditionally does in this situation?

(we better hope they don't)

Mon, 08/13/2012 - 22:16 | 2702835 oldman
oldman's picture


I wasn't going to make any further comments here as I am a zh dropout, but

THANK YOU SO MUCH for your epically long piece from last night!!!!!

It hit me like the writing of the Beats oh so many years ago

Thanks for cheering up this oldman       om

Mon, 08/13/2012 - 17:45 | 2702119 sitenine
sitenine's picture

You can't eat QE.

Mon, 08/13/2012 - 17:50 | 2702127 onelight
onelight's picture

hey wasn't GMO Corn going to feed everybody?

Mon, 08/13/2012 - 18:10 | 2702184 NidStyles
NidStyles's picture

It was those evil speculators driving up the price again. 

Mon, 08/13/2012 - 19:59 | 2702462 TheFourthStooge-ing
TheFourthStooge-ing's picture


hey wasn't GMO Corn going to feed everybody?

At least it's feeding a new generation of mutated RoundupReady© insects.

Mon, 08/13/2012 - 21:03 | 2702624 A Nanny Moose
A Nanny Moose's picture

Would ya settle for some Grey Goose?

Mon, 08/13/2012 - 19:10 | 2702343 CheapBastard
CheapBastard's picture

Food holds a different place in China then in America; it's a mtter of survival there so people riot when they starve. Here, people riot when Popeye's runs out of the 50 piece chicken bucket:

Mon, 08/13/2012 - 17:39 | 2702107 spastic_colon
spastic_colon's picture

Ben - "hello China, can you make some room for our next QE?"

China - "OK"

Mon, 08/13/2012 - 17:40 | 2702113 saturn
saturn's picture

Do not forget to send emergency supply of shark fins and bear's bile, while at it.

Mon, 08/13/2012 - 17:16 | 2702027 ebworthen
ebworthen's picture

You know it will be really serious when they release the shlimp flied lice reserves!

But seriously, they have many more mouths to feed; it's not like they have false flag choices like Republicrats or Demicans to distract and misdirect an angry populace.

Mon, 08/13/2012 - 17:33 | 2702095 francis_sawyer
francis_sawyer's picture

Sawdust burgers from McDonald's & Taco Bell will keep Americans fat & happy...

Mon, 08/13/2012 - 19:06 | 2702336 Pubcoceo
Pubcoceo's picture

I'll bet youre sorry you didnt embrace pink slime now...

Mon, 08/13/2012 - 17:45 | 2702120 Things that go bump
Things that go bump's picture

They have been know to add rice-shaped plastic as an extender. 

Mon, 08/13/2012 - 20:02 | 2702467 TheFourthStooge-ing
TheFourthStooge-ing's picture


They have been know to add rice-shaped plastic as an extender.

...which can later be scooped off the roadside, rinsed off, and reused.

Mon, 08/13/2012 - 18:12 | 2702188 Unbezahlbar
Unbezahlbar's picture

China Home Prices Fall in More Than Half Cities Tracked

Mon, 08/13/2012 - 22:30 | 2702872 Chicken_Little
Chicken_Little's picture

Sorry for jumping in here near the top. My Thai wife talked to her Issan hometown brothers last night who are big time rice farmers and they are saying there's a big problem with not enough rain during Issan's rainy season and unless they get big time rain soon, many of the paddies will be lost. Not long ago the floods here took out most of the rice and this could be half as bad from what they're saying. I think the Thai government rice buying program built up reserves so don't go long on rice. But with the change in government, gasahol 91 and 95 has gone down and benzine 91 (unleaded 91 octane no alcohol) has gone way up. With probable corn shortages everywhere but in Brazil, this gasahol scam needs to stop. While I'm on my soapbox, food prices here are still going up and the Thai people aren't happy about it. The costs of producing and delivering it are going up, so the farmers have to charge more. To keep this post short, I tell my wife it's because of global money printing and stagflation that will eventually end up in hyper-stagflation. She says "alay na?" ("what"? in Thai). Oh gosh, thank buddah for Zerohedge where I can interact with the top 10% of the worlds best minds.

Mon, 08/13/2012 - 17:13 | 2702028 malikai
malikai's picture

QE: Just say no.

Mon, 08/13/2012 - 17:32 | 2702092 DeadFred
DeadFred's picture

Ben will be so sad if he can't rev up the presses

Mon, 08/13/2012 - 17:16 | 2702034 Hype Alert
Hype Alert's picture

Good thing we have a drought going or they would have to blame it on stimulus/printing.

Mon, 08/13/2012 - 17:18 | 2702048 roadsnbridges
roadsnbridges's picture

Beware of copper in your rice.

Mon, 08/13/2012 - 18:10 | 2702183 Barometer
Barometer's picture

Mmmmm....copper and iron ore....together at last

Mon, 08/13/2012 - 17:18 | 2702049 LawsofPhysics
LawsofPhysics's picture

Sending more soybeans to China this year, should I be asking for gold in exchange?

Mon, 08/13/2012 - 17:45 | 2702118 roadsnbridges
roadsnbridges's picture

or silver.

Better, HK honies.

Mon, 08/13/2012 - 18:11 | 2702186 NidStyles
NidStyles's picture

Just be sure to check those packages before you accept delivery. They might be trying to smuggle in some illegal meat. 

Mon, 08/13/2012 - 17:18 | 2702050 Hype Alert
Hype Alert's picture

The release may prompt Chinese importers to cancel shipments in the near term and take some pressure off international corn prices,


Preventing the free flow of food always takes the pressure off.  [/sarc]

Mon, 08/13/2012 - 17:19 | 2702051 bob_dabolina
bob_dabolina's picture

I still really think a high speed rail could fix this.


Mon, 08/13/2012 - 17:19 | 2702055 reader2010
reader2010's picture

Blame it on Bo and his wife.

Mon, 08/13/2012 - 18:47 | 2702278 slewie the pi-rat
slewie the pi-rat's picture

L0L!!! she has been eclipsed by the rooskies who have put pussy riot on trial!

and for my fave crime:  hooliganism!  :>  for staging a performance in Moscow's Christ the Savior Cathedral in which they asked the Virgin Mary to rid Russia of President Vladimir Putin.  <: {R/S]

Pussy Riot Trial Nears Verdict in Moscow | rollingStone

handcuff Nadezhda Tolokonnikov to slewie!  you know how i love to suffer for the sake of the music of the spheres! 

"We sang part of the refrain 'Holy shit,'" Tolokonnikova said in court today. "I am sorry if I offended anyone with this. It is an idiomatic expression, related to the previous verse - about the fusion of Moscow patriarchy and the government. 'Holy shit' is our evaluation of the situation in the country. This opinion is not blasphemy."

well good luck telling that to the patriarchs after praying to the virginM!  what kinda lawyers do these poor girls have?    clearly:   they needed a better theological basis for their defense of hooliganism!  i could handle their appeal.  trust me!

free pussy riot!

Mon, 08/13/2012 - 19:22 | 2702363 redguard
redguard's picture

A riot for free pussy!? didn't those Roman cats do that way back when?

Mon, 08/13/2012 - 19:46 | 2702432 francis_sawyer
francis_sawyer's picture

The thread is about 'food'... So let me try to bridge the gap here...


Mon, 08/13/2012 - 20:09 | 2702486 TheFourthStooge-ing
TheFourthStooge-ing's picture


handcuff Nadezhda Tolokonnikov to slewie!  you know how i love to suffer for the sake of the music of the spheres!

Send her to my house; I would find her hooligation pleasing.

Mon, 08/13/2012 - 20:44 | 2702587 slewie the pi-rat
slewie the pi-rat's picture

i sense a wealth of fluidity in the depths of her love of free speech;  she is such a natural zeroHead! 

idiomatic expression to die for

putin must be going nuts!  pwned, BiCheZ!

free pussy riot!

Mon, 08/13/2012 - 17:20 | 2702057 Alpo for Granny
Alpo for Granny's picture

Let them bitchez eat gold.

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