Saturday, May 24, 2014

We don't understand jack...

About China.  I read this on MR recently:
In just two years, from 2011 to 2012, China produced more cement than the US did in the entire 20th century, according to historical data from the US Geological Survey and China’s National Bureau of Statistics. [More]
That quote itself is from the FT, but I used this pointer so you could see the comments. Most of the but-that-can't-be-right arguments are noted and dispensed with there with good links.

In fact, to buttress this mind-blowing fact, consider this previous CFOTD:
Before the Communists came to power in 1949, China had only 22 dams of any significant size. Now the country has more than half of the world’s roughly 50,000 large dams, defined as having a height of at least 15 meters, or a storage capacity of more than three million cubic meters. Thus, China has completed, on average, at least one large dam per day since 1949. If dams of all sizes are counted, China’s total surpasses 85,000. [More]
I mentioned this factoid on the show and the incredulity was uniform.  I'm still unable to wrap my intuitive thinking around it. The unavoidable suspicion is if I can't come to grips with this solid evidence of the enormity of Chinese construction activity, what makes me think I have any feel for their food industry?

Since I had been pondering "whither farmland prices?", oddly enough the two strands intertwined. I came up with these working theories:
  1. The economy of China is not just bigger than we imagine, it is bigger than we can imagine.
  2. We are most probably underestimating Chinese demand for ag products in the future.
  3. By a lot.
Just like we totally missed - as in NOBODY called it - the incredible run-up in farmland prices in the last decade, I think we're about to do it again. China can drive the demand for protein especially to support routinely higher grain prices for the foreseeable future.

Bottom line, I see much lower odds of success by getting bearish on farmland simply because some bankers want to be the next Nouriel Roubini. They were wrong in 2009. I think they are short-sighted now.

Update:

Just like I did, the enormity of this disparity has some groping for a clearer picture.  So:

It's not heavily influenced by imports/exports.  The US only in the last few years have imported much more than a few percent.  China is currently producing about 25 times ( 2.2Btons vs. 74Mtons) our output and exporting. It exports ~17 Mtons. 




3 comments:

Paul Nelson said...

Just a quick search showed that the U.S. Is a major importer of cement while China was a major exporter before the massive increase in their construction. Helps explain the staggering statistic.

John Phipps said...

Paul:

I did the searches before reaching my conclusion.

Please see update.

Anonymous said...

John our generation I believe always thought we were the World's leader of innovation and the drivers of the world economy .Having been educated in a 1 room school with 25 kids from Grade 1-8 and a 19 yr. old teacher we did not learn a real of of world issues but did learn a lot about life.The understanding was if you can graduate grade 10 you can be a "high payed" auto factory worker but if you drop out of school you are going too have to be a farmer. So much has changed as Son and DIL both are chem. eng. like you and major oil company-refinery is flying Son too Singapore on Friday too see advanced processes used there by there company. The hardest thing maybe for North Americans tool accept is we are not going to be world class leaders and others can do as good or better than us for less. John hope planting all went good for your family-regards-kevin