U.S. grain futures fell after an earthquake in Japan raised fears that the world’s third largest economy would slow commodity purchases, extending a sell-off in which wheat prices notched their biggest weekly loss in more than two years.
Grain companies bought the futures at the dips but were still overwhelmed by heavy selling by funds, which were net sellers of an estimated 30,000 corn contracts during the trading day.
“There are still some air pockets underneath this market,” said Rich Feltes, vice-president of research for R.J. O’Brien. “Rallies are going to be sold until we get a little further into the calendar year and really get into some crop supply fundamentals.”
Uncertainty about how long it would take Japan, the top buyer of corn and major importer of wheat from the U.S., to recover and reopen shuttered grain ports was expected to roil commodity markets for days.
“Japan is the U.S.’s largest corn customer in the export market,” said Doug Bergman, a grain broker with MF Global.
“When the market is already reeling a little bit here, it is kind of adding fuel to the fire.”
Corn prices dropped 2.7 per cent on the Chicago Board of Trade (CBOT) in their sixth straight losing session, falling to the lowest level in nearly six weeks. The benchmark CBOT corn contract fell 8.8 per cent this week and posted its biggest weekly percentage decline since November.
Investors who had built massive long positions in grains have been trimming exposure all week as crude oil jumped above $105 per barrel (all figures US$). The earthquake in Japan provided further impetus for investors to seek safe havens.
“It is maybe more of a panic of ‘Get me out of the market,'” said Mark Schultz, chief market analyst with Northstar Commodity Investment Co.
Corn’s losing streak has left prices about 10 per cent below the 32-month peak hit this month. Traders have noted heavy sales by investment funds during the slide.
Traders noted heavy trading in corn, with volumes coming in about 20 per cent above their 30-day average. Volumes in wheat and soybeans were well below their 30-day average.
CBOT May corn ended down 18-1/2 cents at $6.64-1/4 a bushel, hitting its lowest level since Jan. 31 early in the trading day.
May wheat fell 21-3/4 cents to $7.18-3/4 a bushel. Prices hit their lowest level since early December earlier in the session. Wheat plunged 13.6 percent this week, its biggest weekly loss in percentage terms since December 2008.
May soybeans, which touched their lowest level since Feb. 23, closed off 21 cents at $13.34-1/2 a bushel. Prices fell 5.6 percent during the week, the soy market’s worst weekly sell-off since October 2010.
The earthquake added to a bearish mood in markets already jittery about upheaval in the Middle East, where leading oil producer Saudi Arabia was the latest country to face protests.
“The unrest, which is seemingly spreading to Saudi Arabia, is further negative information for the commodities complex, outside of crude oil of course,” said Luke Matthews, a commodity strategist at the Commonwealth Bank of Australia.
The recent slide has sent agricultural futures through some key technical levels of support. Corn prices dropped below their 50-day moving average for the first time in three months on Friday morning.
Wheat futures were trading below their 200-day moving average for the first time since July.
— Additional reporting for Reuters by Sam Nelson in Chicago and Naveen Thukral in Singapore