China: Crossing The Finishing Line Before We Even Realised There Was A Race On

November soybeans on the Chicago Board of trade closed at $10.86/bu last night, that's equivalent to $399/tonne. November Chinese futures on the Dalian closed at 3816 yuan, roughly $557/tonne. At a differential like that it's not hard to see why Chinese crushers keep coming back for more US beans.

There's a story going around that the Chinese government are looking to build up massive state reserves of some 50 million tonnes of soybeans. It's not quite such a crazy idea as it might sound.

The Chinese hold massive foreign currency reserves, much of it in dollars, and these reserves are being devalued by the day as the quantitative easing printing presses roll. In fact China is the biggest foreign owner of US Treasury bonds, with holdings worth $760 billion in March. "Your money is safe with us" Timothy Geithner, the US Treasury Secretary, has assured an uneasy China.

They don't want dollars, and they don't want US Treasuries, so why not swap those devaluing bits of paper for something useful like US soybeans? Especially at a time when your major soybean growing area has just had the lowest recorded May rainfall in almost 60 years. Especially when one of your major suppliers has just seen their crop decimated to the tune of 40%.

Printing money leads to inflation, that is a given, and the world has never printed money on this sort of scale ever before. So why not hyperinflation? The prudent thing to do would be turn those dollars into something tangible. So why not step in early and buy up just about every commodity going?

Copper, zinc, aluminum, tin, rubber, palm oil and sugar were all higher on Chinese interest yesterday besides the grains.