Corn futures plunge 30-cent limit on concern over Japan demand

Corn futures in Chicago plunged the daily, 30-cent limit amid a broad commodity market sell-off fueled by concern that Japan’s devastating earthquake and tsunami will cut demand from one of the largest buyers of U.S. agricultural products.

The disaster sent global stock markets tumbling and triggered heavy speculator selling in grain and livestock futures this week, traders at CME Group in Chicago said. Speculators had accumulated large bullish bets as corn and other commodities rallied since last fall.

“It’s just massive liquidation,” said Matt Maloney, a broker with R.J. O’Brien & Associates in the CME’s corn futures pit. “It’s just going to get worse.”

Corn futures probably have further room to drop as markets grapple with the longer-term implications of the disaster, traders and analysts said. May corn futures may decline as low as $5.75 a bushel, Maloney said.

In trading March 15, corn for May delivery fell 30 cents, the maximum daily move allowed by the exchange, to $6.42 ½ a bushel. March corn fell 30 cents to $6.36, down almost 16 percent from a 32-month high of $7.35 on March 4.

Livestock markets also sank, with cattle futures down the daily limit and hog prices hitting the lowest levels since early January.

More than 2,700 have been confirmed dead and several hundred thousand were left homeless after the tsunami, triggered by a 9.0 magnitude earthquake, struck the northeast coast of Japan March 11, according to news reports.

Analysts say Japan’s economy, the world’s second-biggest next to the U.S., will slow at least temporarily, reducing demand for grain and other commodities. Japan is the largest foreign buyer of U.S. corn and is also a top market for beef, pork and dairy products.

The situation in Japan is “worsening by the hour,” said Rich Feltes, a grain analyst with R.J. O’Brien in Chicago, said in a March 15 report. “Not only will short-term grain flows be disrupted, but prospects for a less-robust global recovery will temper near-term interest in commodity longs.”

U.S. agriculture groups say they expect near-term disruptions to Japan’s agricultural imports, but the longer-term implications are still unclear.

There may have been “significant” damage to many of Japan’s agricultural facilities and production areas, according to the U.S. Grains Council, a Washington, D.C.-based trade association. While the extent of the damage is not yet known, grain trade will likely be affected after some ports in northern Japan were hit by the tsunami, the council said.

“We’ve heard some feed mills and livestock operations have also been damaged by the tsunami,” said Tommy Hamamoto, the Grain Council’s director in Japan, according to a March 11 statement. “It is too early to tell what effect this will have on Japan’s agricultural sector, but it could be of significance.”

A Grains Council spokeswoman didn’t immediately respond to a request for an update March 15.

From September through February, Japan imported 7.12 million metric tons of U.S. corn, up 4.7 percent from the same period a year earlier, according to U.S. Department of Agriculture data. Japan is expected to import $13 billion of U.S. agricultural products in fiscal 2011, the fourth-highest behind China, Canada and Mexico, according to the USDA.

The corn market’s downturn, which started earlier this month, has provided some relief to livestock feeder who’ve watched feed costs soar in recent months.

Jack Scoville, an analyst with Price Futures Group in Chicago, said livestock producers returned to the futures market last week and early this week to lock in cheaper corn. But they’ve since backed away, expecting prices to decline even more, he said.

The corn market’s slide may be only temporary, some traders and analysts say. That’s because grain supplies remain tight and ethanol makers are using record amounts of corn, meaning any weather problems during the upcoming U.S. growing season will push prices higher.

Maloney, the corn broker, expects prices to climb back above $7 in coming months.

“Eventually, this is a good buy,” he said. “I still think we will see $7.50, and then some.”

In trading March 15, lean hog futures for April delivery fell 1.075 cents to 84.875 cents a pound, down almost 11 percent from a record high of 95 cents set Feb. 16. The CME contract reflects carcass values. April live cattle futures fell 3 cents to $1.135 a pound.

(Source: http://www.dairyherd.com/dairy-news/latest/Corn-futures-plunge-30-cent-limit-on-concern-over-Japan-demand-118025304.html)