One of my favorite places to travel is Asia.  It just so happens that much of our agricultural demand growth is coming through that part of the world so as an agricultural economist I’m lucky that I have seen much of that region.  As we careen into the new year, its pretty clear much of our 2011 agriculture demand will come from there.  The Chinese appetite for agricultural commodities from the Americas seems to have no end.

In my musings over the years I’ve always cautioned readers about the fickle nature of the newfound Asian demand for our agricultural commodities.  No, it certainly doesn’t look fickle now, as China has demonstrated an insatiable appetite for soybeans.  So when bombs rained down on South Korea last week causing the most damage since the 1953 armistice, it sent shockwaves through world markets.  I’ve always said that Asia has never been peaceful for a long time.  Any hiccup in that long period of peace can fracture our agricultural trade channels very quickly.

So what do you do about North Korea?  North Korea is a rogue nation, which starves its own people at the expense of a huge military and a nuclear arsenal.  When the big power in the neighborhood is China you would think that they could keep things peaceful.  In this case the little bugger of the neighourhood has those pesky nooks.  So they have to be handled with kid’s gloves.  Sadly for South Korea, it’s not easy.  Several people were killed in the attacks last week.

So if we wake up on Wednesday morning to a mushroom cloud over Seoul, what would that do for agricultural trade?  Yes, perish the thought but that is the endgame in this.  It is what the world needs to avoid.  The specter of that will send shivers through financial and agricultural markets anytime there is a flare up.

Sometimes I think we forget that.  Living in North America is very stable.  None of us unless we have emigrated from unstable parts of the world know what it’s like to experience war.  I have friends who have had to abandon their homes when they were attacked by other countries.  I’m not predicting any type of nuclear holocaust in Korea. I just want to drive home the point why this is important to agricultural markets.

Having said that, I laughed out loud last week when somebody on twitter said Kim Jong-Il bombed South Korea because he was short in the market.  It just so happened that the day before markets have gone up a bit so it was an obvious joke.  That market skittishness of last week was an example of how China can add to market nervousness.  Add the sovereign debt problems that I talked about earlier this year, this time from Ireland and we got a bit of an uneven toxic mix in an otherwise burgeoning agricultural demand scenario.

If you are a Canadian grain producer it is hard not to be bullish going into 2011.  Yes, the Chinese want our agricultural commodities.  They need them because everything is coming true about the Chinese population.  With double-digit economic growth rates the demand for foodstuffs is rising.  Chinese consumers are demanding more protein in their diet and they need more grain to not only feed the people but also the livestock too.  Every day in East Asia people sit down for some soybeans at breakfast.  Add this all up and it can only be construed as very good for long-term agricultural commodity demand.

The problem is China does not have the resources to feed their people efficiently.  They have to import.  The high economic growth rates and higher food prices are causing inflationary concerns to rise there.  Chinese commercial banks have been asked to curtail lending by the central government as these inflationary concerns are hitting the ground.  This has the overall effect of throwing a little water on the demand fire.

Of course in the mix is all the US debt, which China holds.  If you are the Chinese do you like QE2?  The first answer is no because it will devalue the US dollar but that’s a bit of an end game now because the US dollar has been rising.  Needless to say, with the Chinese holding so much American currency who needs who?   Simply put, this is putting a strain on US China relations.   Like everything else when they’re talking about the money, it’s always a problem.

So as we look ahead to the 2011 acreage war in our future there will be a myriad of factors for us to consider.  The ace in the deck for agricultural demand is Asia, and principally China.  Keep in mind, it’s a good place to be, but it’s not a sure thing.  Yes, once again, Asia doesn’t have a history of being peaceful.  I’m just saying.