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Ron and Sue Mortensen: Quake rattles market

04/07/2011 @ 1:33pm

“Earthquake II” in Japan caused jitters in the commodities markets early today.  This earthquake struck at night (Japanese time), so information is somewhat limited and television news pictures only showed outside lights swaying as the earth shook.  By the evening news shows (early morning in Japan), there should be a better handle on the situation.  

The ag markets have also been rattled by the earthquake.  Corn futures dove off 10 cents, wheat was down about 30 cents, and soybeans were down about 15 cents.  The reaction was short lived compared to the move in March which lasted days.  By the end of the day, for example, corn was steady to two cents lower.  Only really livestock seemed to hang on to the bad attitude.

Tomorrow the USDA will release supply/demand tables incorporating the stocks numbers that were released on March 31st.  It will be interesting to see how the USDA chooses to handle the corn stocks situation.  Given that there is justification to increase all the major categories of use, what will the USDA do to show adequate ending stocks?  

The corn market is between a rock and a hard place because it can not undo what has already been consumed.  Therefore price must try to ration use in any way it can.  

The question of substitutes also comes up.  Some soft wheat can be fed, although right now it is difficult to imagine a lot of feeding--commercials can store wheat and hedge it in a deferred month and make money.  Some Canadian feed wheat has apparently been bought for a livestock feeder in the southeast--that sort of thing could continue on a limited basis.  

Even though the USDA has some planted acres to work with, no 2011 crop information will be put together until the May report.

The risk of loss in trading commodities can be substantial.  You should therefore carefully consider whether such trading is suitable for you in light of your financial situation. 

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