US farmland faces asset bubble test

May 21, 2013 5:23 pm

US farmland faces asset bubble test

By Gregory Meyer in New York

A century ago, US farmland real estate enjoyed a huge boom. Interest rates were low. Grain prices were high. The world’s appetite for agricultural exports seemed endless. Now, as a strikingly similar story unfolds, land investors are hoping for a different ending. From 1900-19 US farmland gained 70 per cent. Then the farming economy was hit by a rise in interest rates and a slowdown in food imports after the first world war. Land prices collapsed back to turn-of-the-century levels by 1940. Over the past decade, US farmland prices have doubled as the Federal Reserve has held interest rates at historic lows and demand has stayed strong. The big question is what will happen when monetary policy is tightened and the supply of grain grows. The question is important not only for farmers bidding at country auctions, but also for big investors that have poured billions of dollars into farmland as a “real asset”. After embracing timber land and commodity futures, some are touting acreage planted with corn, cotton, almond or soya as a wager on rising population and incomes. “It’s a long-term belief in an upward trend,” says Linda Assante of investment firm Jasper Ridge Partners.

That belief is about to undergo a stiff test. First, most US crop prices are falling – CBOT corn delivered after the harvest is about $5 a bushel, the lowest in almost a year, as US, Brazilian and Argentine farmers eye record crops. Second, interest rates have nowhere to go but upwards. “When we get a combination of those two things – declining grain prices and rising interest rates – we’re going to see an adjustment in farmland values in the Midwest,” says Stephen Gabriel, chief economist at the Farm Credit Administration, which oversees government-sponsored agricultural lenders. “A 20 per cent decline would not be out of the question.” Read more of this post

Coal miners in Australia are auctioning port assets worth tens of millions of dollars, an unthinkable prospect as recently as 18 months ago, when they were scrambling to secure berths

May 21, 2013

Coal Miners Try to Unload Australian Port Assets

By Rhiannon Hoyle and David Winning

Coal miners in Australia are auctioning port assets worth tens of millions of dollars, an unthinkable prospect as recently as 18 months ago, when they were scrambling to secure berths.

Australia exports more than 80% of its coal output, and miners signed long-term deals with port operators to lock in space at export terminals when coal prices were high. Now, these contracts are weighing on profits as companies face delays to new projects and battle falling coal prices.

Miners like Glencore Xstrata PLC GLEN.LN +3.30%and Yancoal Australia Ltd. YAL.AU 0.00%are putting excess port capacity on the block, signaling a lack of confidence that coal prices will rebound soon. But slack demand for coal and rising supply from Russia and Indonesia suggest the auctions will likely attract few bidders. Read more of this post

Muddy Waters’ Carson Block Says China Banks’ Bad Loans Spread Beyond Government Debt

Block Says China Banks’ Bad Loans Spread Beyond Government Debt

Carson Block, the short seller who runs Muddy Waters LLC, said China’s bad-loan problem is more widespread than just local government debt and includes public and private sector borrowing.

Non-performing loan “figures greatly understate the potential scope of the problem of poor-quality loans,” Block said in an e-mail. “We believe that the PRC banking system will be hit hard by the unwind, and that the government will be forced to recapitalize a number of the banks.”

Chinese banks are grappling with rising defaults and slowing profit growth as regulators ease controls over loan pricing and deposits to spur competition. The country’s soured debt, which has risen for six straight quarters, in part prompted Block to bet against the bonds of Standard Chartered Plc, the U.K. bank that earns most of its profit in Asia.

Bad debt in China climbed to 526.5 billion yuan ($86 billion) in the three months through March, marking the longest deterioration streak in at least nine years, according to regulatory data released this month. Read more of this post

Singapore’s GIC Cautious About Seeking Higher Returns as Yields Remain Low

GIC Cautious About Seeking Higher Returns as Yields Remain Low

Government of Singapore Investment Corp., which manages more than $100 bilion of assets, said it’s more “cautious” about seeking higher returns on its assets as yields remain low. The average annual return on bond yields will be about 1.9 percent over the next decade, while equities may offer a 1.6 percent median real return a year during that period, said Lim Chow Kiat, chief investment officer of the fund, citing different portfolio models.

“We are getting more cautious in reaching out for higher yielding assets,” Lim, who assumed his position in February, said at a conference in Singapore today. “No one can predict when the end game will be, but we can prepare for it.” Central banks are putting downward pressure on benchmark borrowing costs, leading investors to seek higher-yielding assets outside of government bond markets. U.S. 10-year rates fell to an all-time low of 1.38 percent in July, and the Standard & Poor’s 500 Index rallied to a record this week. “Central banks will find it hard to exit from this quantitative easing policy,” Lim said, adding that “substantial risks remain.”

Read more of this post

China Trade Surplus Seen by BofA at One-Tenth Official Figure

China Trade Surplus Seen by BofA at One-Tenth Official Figure

China’s trade surplus is one-tenth the official $61 billion reported so far this year after accounting for fake transactions used to disguise hot-money inflows, Bank of America Corp. says.

The true surplus is about $6 billion, according to Lu Ting, Bank of America’s head of Greater China economics in Hong Kong. That would be the smallest for January-April since the nation posted a $10.8 billion deficit in 2004.

Lu’s calculations suggest the surplus shrank instead of tripling from a year earlier, a sign that global demand is restraining rather than boosting the world’s second-largest economy. Bank of America’s estimate underscores the size of possible discrepancies in the trade data, which has been disputed by analysts for four months, and broader skepticism about Chinese statistics from gross domestic product to jobs. Read more of this post

Artificial Growth Exhibit A: China’s Inventory Stockpiling Hits All Time High

Artificial Growth Exhibit A: China’s Inventory Stockpiling Hits All Time High

Tyler Durden on 05/20/2013 15:49 -0400

Need a quick GDP boost in a world in which the uber levered consumer is tapped out and has no more savings or purchasing power, in which the government is facing an existential socialism or bust crisis even as global sovereign debt levels are at unseens before levels, and in which global trade has collapsed (so there go the C, G and (X-M) components of GDP)? No problem, just add some I for Inventory. Better yet, add a whole lot of I, especially if you are that global growth dynamo, China, which over the years many have accused of having taken the term “overcapacity” and put it through the Barry Bonds juicer yet where courtesy of a central-planning regime that has made sure nothing appears to be unused, except for the occasional ghost city or empty mall, proof of such overcapacity has been scarce in official, government data. Well, today we have definitive evidence – once again courtesy of the private sector where fudging and manipulating data is that much more difficult – that Chinese Inventory is now at absolutely all time record highs. Below, courtesy of CLSA’s Chris Wood, is a chart of rising inventories as a percentage of revenue. What is visible is that the inventory-to-revenue ratio of A share companies, excluding financials and energy, increased to a historical high of 1.37x in 1Q13, while the receivable-to-revenue ratio also rose to a 10-year high of 0.52x. And that’s were the bulk of Chinese “growth” has come from, which in turn is supposed to be the global growth buffer because without China growing at a comfortable 7.5%-8%, the rest of the world is lost. But don’t worry, “if you stock up on enough inventory, they will come.“… Unless they don’t. In which case the resultant massive wholesale inventory dump will be an epic sight to behold.

Chinese businesses grapple with succession

Chinese businesses grapple with succession

Staff Reporter

2013-05-19

Several Chinese companies established after the country introduced economic reforms in the 1980s, are facing succession issues, as company founders and key executives near the age of retirement, the mainland-based China Times reports. Some of the first-generation entrepreneurs, who successfully built their businesses or state-owned companies, see the company as their own personal assets and find it difficult to leave their positions quietly to make way for the next generation, the paper said. Read more of this post

Hunan Rice Sales Plunge as China Probes Cadmium Contamination

Hunan Rice Sales Plunge as China Probes Cadmium Contamination

Sales of rice from China’s top producing province have slumped amid reports that supplies from Hunan contain traces of cadmium that exceed government limits, a state-owned agriculture researcher said.

Rice traders in Hunan reported sales dropping by more than half from a year ago since media reports of the pollutant in began appearing, Cngrain.com said on its website. The researcher, which is owned by China Grain Reserves Corp., a custodian of government food reserves, didn’t provide figures for the drop in sales.

The Nanfang Daily first reported in February that rice from Hunan sold in southern Guangdong province contained excessive levels of toxic metal and the Guangzhou Food and Drug Administration reignited concerns with reports on its website last week. It is a blow to farmers in the region because sales of indica rice, a long-grain variety consumed in southern China and used for milling and brewing, were already being hurt by low-cost imports, Zhang Zhixian, analyst of Cngrain.com, said by phone from Zhengzhou in central China. Read more of this post

China’s tea companies hard-pressed to successfully list

China’s tea companies hard-pressed to successfully list

Staff Reporter

2013-05-20

A Bama Tea store. (Photo/CFP)

Despite having capital support, tea enterprises find it very challenging to get listed on the A-share market in China, owing to their small revenue scale, limited profit-earning capabilities, poor internal management and limited scope for business expansion.

The Fujian-based Bama Tea recently hit headlines on the mainland with news of it preparing to launch an initial public offering (IPO) after acquiring funds totaling 150 million yuan (US$24.4 million) from four venture capital companies.

However, Bama’s ambition to become China’s first listed tea company is “very unlikely,” China Business News reported. “The possibility is very small,” the newspaper said, citing Ouyang Daokun, secretary-general of the China Tea Leaders Club. Read more of this post

Australian mining and resources sector contractors are suffering with major customers deferring projects as commodity prices fall and costs rise

Transfield Leads Slump in Infrastructure Providers: Sydney Mover

Transfield Services Ltd. (TSE) plunged to the lowest in 12 years in Sydney, leading a slump in mining and infrastructure contractors, after cutting its earnings forecast amid a slowdown in mining and processing activity.

Transfield fell 24 percent to 97 Australian cents, the lowest since May 3, 2001. Fleetwood Corp., which sells and rents portable buildings to infrastructure and mining customers, tumbled 25 percent after saying yesterday that second-half earnings will be below the first half amid a “softening resources sector.” The two companies were among the three worst performers in the benchmark S&P/ASX 200 (AS51) Index.

Mining and resources sector contractors are suffering with major customers deferring projects as commodity prices fall and costs rise. BHP Billiton Ltd. (BHP), the world’s largest mining company, is targeting an 18 percent cut to capital spending in fiscal 2014, its new chief executive, Andrew Mackenzie, said May 14. Rio Tinto Group is seeking to cut $2 billion in costs this year across its mining and corporate offices. Read more of this post

Hershey Keen for Piece of China

May 20, 2013, 2:56 p.m. ET

Hershey Keen for Piece of China

By COLUM MURPHY in Shanghai and LAURIE BURKITT in Beijing

Aware that it needs China’s sweet tooth, Hershey Co. HSY -1.44% is rolling out a Chinese brand designed for the world’s fastest-growing candy market.

In a first launch beyond the U.S. market, Hershey is unveiling on Tuesday a candy known in English as the Lancaster and in Chinese as Yo-man. The Pennsylvania company plans to spend “several million dollars” marketing three kinds of the condensed-milk candy to gain a share of China’s market for milk candy, which Hershey estimated to be worth 7.5 billion yuan ($1.2 billion).

Premium milk candy is the fastest-growing segment in China’s candy market, Hershey said. Read more of this post

Half of the silk on sale in Beijing contains little or no silk, study finds

Half of the silk on sale in Beijing contains little or no silk, study finds

Monday, 20 May, 2013, 12:19pm

Ernest Kao ernest.kao@scmp.com

Study finds some silk on sale in Beijing doesn’t contain any silk

Another product has been added to the list of unsafe Chinese exports, but consumers can breathe a sigh of relief because unlike ginger, cooking oil, milk powder and rice, this one is not to be ingested.

At least half of the silk products on sale in China’s capital do not meet safety and quality standards, according to a Beijing Consumers Association study, with most cases finding that the product contained little or no silk at all. The study tested 40 types of silk products bought from local retailers, department stores and online stores including Wal-Mart, Wumart, Sogo and e-commerce site Jingdong Mall. Read more of this post

There’s a catch to Chinese President Xi’s tiger trap; is this beginning of the end of Xi’s campaign against corruption? Xi will need to be careful not to be trapped by powerful entrenched internal resistance from within the Party’s most senior levels

There’s a catch to Xi’s tiger trap

Geoff Raby7 hours ago1

A cardinal rule in politics is to under-promise and over-deliver. When Xi Jinping late last year, on becoming Communist Party of China general secretary, announced (yet another) crackdown on corruption, he raised the bar by declaring that it would not be enough to “swat flies” but “tigers” also had to be caught. In doing so, he immediately raised expectations which he seemed in danger of disappointing.

Last week’s sensational announcement that Liu Tienan was under investigation for corruption may now have changed all that. In March, Liu was removed from his post as director of the National Energy Agency in the all-powerful National Development and Reform Commission – but continued on as an NDRC vice chairman. Read more of this post

CHART OF THE DAY: This Chart Comparing Caterpillar To Citi Shows How The US Is Kicking China’s Butt

CHART OF THE DAY: This Chart Comparing Caterpillar To Citi Shows How The US Is Kicking China’s Butt

Matthew Boesler | May 20, 2013, 10:20 AM | 2,382 | 1

The chart below, via BofA Merrill Lynch strategist Michael Hartnett, provides an interesting visualization of one of the big themes playing out in global markets right now. Bloomberg TV anchor Scarlet Fu called this her “single best chart” this morning. Citigroup, one of America’s largest banks and something of a poster child for the global financial crisis, is taking back ground against Caterpillar, the global construction machinery giant seen as a bellwether for global growth, particularly in China. The chart underscores both the outperformance of the U.S. economy relative to the rest of the world that everyone is buzzing about and concurrent fears over a global growth slowdown in general, a story in which China plays a central role.

Unclear whether Fed’s QE bond buying has helped economy: Fisher

Unclear whether Fed’s bond buying has helped economy: Fisher

8:36am EDT

(Reuters) – While the Federal Reserve’s accommodative policies have boosted stocks and helped the rich, it is unclear whether they are doing enough for the broader U.S. economy, a top central bank official said on Monday. “We’ve made rich people richer…,” Dallas Fed President Richard Fisher said on CNBC television. “Question is what have we done for working men and women in America?” Fisher, who has long opposed the Fed’s bond-buying program and wants to reduce it, added he expects real gross domestic product growth of more than 2.5 percent by year end. The central bank is buying $45 billion in Treasury bonds and $40 billion in mortgage bonds each month in an effort to encourage investment, hiring and economic growth in part because the unemployment rate remains high at 7.5 percent. Read more of this post