I spent all day yesterday looking at the relationship between natural disasters and food prices for a new paper I am working on. This led me to wonder about the impacts of the earthquake and tsunami that hit Japan last Friday on food prices.
It looks as though commodity markets have already registered the shock, but in a way that is counter to what one might expect:
“The largest ever earth quake recorded in Japan has caused a deep crash in agri-commodities especially soybean and rubber. US Soybean May futures dropped 5.6% to $13.345 a bushel as Japan is a major importer of this crop from USA along with corn.
At National Multi-Commodity Exchange (NMCE), rubber futures tumbled closed to 8 percent last week tracking trends from Tocom futures already hit by the tsunami waves.”
In other words, whereas I would have expected an increase in commodity prices — the usual response after a natural disaster, according to the data I have been getting my hands dirty with yesterday — the opposite has happened.
In the longer term, I expect commodity prices to increase, however, especially in light of this article, which notes:
“The US Grains Council received initial reports that this morning’s earthquake and subsequent tsunami may have caused significant damage to many of Japan’s agricultural facilities and production areas. While the extent of the damage is not yet known, it will likely impact grain trade.”
In other words, we should expect a decrease in supply which should cause a price increase given the relative inelasticity of the demand for food. Not convinced? After looking at the images published by the New Zealand Herald, the negative shock to agriculture should pass the Intra-Ocular Trauma test. Just be sure to hover your mouse pointer over the pictures to see the “after” pictures.