As northeast Japan trembled through aftershocks from the March 11 earthquake, uncertainty about the effects on trade drove commodity markets into a one-day plunge on March 15.
“The main theme again today was de-risking,” said Jim Warren, an analyst at the Country Hedging Kansas City office, on the afternoon of March 15. “Fears and uncertainty about the situation in Japan have traders taking risk off the table, just wanting to stand aside.”
Market analyst Darrell Holaday at Country Futures, Frankfurt, Kan., capped his commentary on the market's response to Japanese developments with this: “Talking about the fundamentals of the grains is really a waste of breath today.”
Japan has a huge appetite for grains, soybeans, and meats, relying on imports for about 60% of its food. Japan is the leading destination for U.S. corn exports, is second to Egypt as a U.S. wheat buyer, and ranks fourth in purchases of U.S. soybeans.
U.S. commodity market promotion groups worked this week to fill the information void.
“Most of the focus in Japan is on search and rescue operations, getting food and water and medical treatment to people,” said Mike Callahan, U.S. Grains Council senior director of international operations, in a March 15 commentary posted on the organizations' Web site.
Callahan said the council's staff members could get to their offices, but they couldn't reach areas impacted by the earthquake and tsunami. They had been talking with contacts in the feed industry and grain trade, “but the impact on the grain trade is not fully known at this time.”
About 17% of Japan's feed milling industry is in areas affected by the quake and tsunami. Many of Japan's mills are linked to grain ports, where they receive ingredients to make feed for shipment to animal producers.
Grain buyers in Japan have asked suppliers to channel shipments to ports or feed mills that were not damaged by the quake or tsunami, and mills are coordinating to serve the market, said Callahan.
Still buying wheat
At least one port that accepts mostly feed grains was seriously damaged, and other ports in northeastern Japan suffered various levels of harm, said Steve Mercer, U.S. Wheat Associates director of communications.
Japan's flour mills, most of which are located outside the quake area, appear to have escaped much serious damage.
“Japan's Ministry of Agriculture, Forestry, and Fisheries is still tendering for wheat,” noted Mercer. “The biggest issue for flour millers is electrical power.” Japan is using rolling blackouts as it manages the power grid.
Damage to roads and railroads stopped or limited movement of trucks and trains in parts of the region hit by the earthquake and tsunami. Japanese government officials told representatives of U.S. commodity organizations that the government was trying to keep transportation available.
Japan is a major importer of meats. In a March 11 report, the U.S. Meat Export Federation said, “Japan showed no letdown from its record-breaking performance of 2010, when it purchased more than $1.6 billion in U.S. pork. January exports to Japan totaled 35,765 tons valued at $133.5 million—an increase of 28 percent in volume and 24 percent in value over a year ago.”
Jim Herlihy, vice president for information services at the U.S. Meat Export Federation, said this week that the challenge for meat distribution in Japan is to get transportation back to normal and maintain electrical power for cold storage and distribution.
“In the northeast region, there have been dramatic effects in terms of the ability of stores and food service outlets to operate,” said Herlihy. In the rest of the country, business is returning to normal. However, he said, “We don't see this having a significant impact in the mid- to long term on meat demand.”