The Growing Threat Of Soybean-Inspired Social Unrest In China

Two weeks ago we explained [3] why the drought-inspired soaring price of Soybeans - specifically from the US - would notably influence global central-planners' actions - and more specifically the Chinese (given its high impact on food price inflation). Food prices remain elevated and the PBoC is undertaking Reverse Repos - the exact opposite of an RRR-driven easing program so many expected. However, there is a further, deeper, and more troubling consequence than 'simple' inflationary arguments - that of social unrest. Confirming our insight, the LA Times points out,

Soybean oil is the most important edible oil in China with more than two-thirds of cooking oil consumed in China coming from soybeans - and most of those soybeans are supplied by the US (more than half of US exports are to China and the US is China's number 1 supplier). According to one official this "makes [China] vulnerable to the drought" and bound to the fortunes of farmers in the American heartland. The Chinese devote more than 20% of their income to food (three times more than Americans - according to the USDA).

This means the dramatic rise not just in grain prices, but in the up-stream prices of meat, eggs, and milk combined with the until-now newly affluent (un-dirt-poor) Chinese have grown transitorily-used to an "everything needs oil" attitude when spending and this price-jolt to newly entrenched tastes is why authorities are concerned about social stability; as IHS points out "Inflation has a long history of sparking discontent, so obviously it's on the forefront of the Chinese leadership's mind."

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