Quake, Rattle And Roll

12/03/11 -- The devastating Japanese earthquake certainly got the markets rattled on Friday, although beans and corn rebounded from early losses to close around the middle of the day's trading range. Wheat closed close to session lows.

Funds will be closely monitoring the situation in Japan over the weekend, asking themselves are these levels a God given opportunity to roll back into the market, or is this only the start of a return to historically "normal" levels?

As I type this the world media is reporting of a "huge explosion" at an ageing Japanese nuclear power plant at Fukushima (there's probably a joke in there, but I won't attempt to find it right now). Officials are being quick to reassure everyone that the container housing the reactor was not damaged.

The Japanese don't have a great track record in being completely, or even quite, truthful when it comes to incidents of this kind though. What they have said though is that radioactivity has been found in the area, and that they've extended the evacuation zone around the plant to 20km, although the BBC are reporting that one of their reporters was stopped by police 60km from the area.

It seems that the world is now sitting and waiting to discover if one of the plant's four reactors has in fact gone into meltdown.

What we do know and will all have seen on our televisions is the magnitude of the devastation caused by the earthquake and the resultant tsunami. Destruction that will take years and many billions of dollars to put right, in a country already saddled with a large debt problem.

Certainly there are going to be dramatic, and long-term, economic implications. In the short-term there are also the effects of plant closures to major Japanese manufacturers like Sony, Honda, Toyota and Panasonic to consider, and the resultant effect on demand for commodities.

So what are the likely implications for the grain markets then I hear you ponder. One report I read today said "none, people still have to eat". That's true of course, although I suspect that the fund's appetites have been severely damaged by this particular latest dose of indigestion.

Indeed their stomachs may well be in for a further testing next week I suspect once they've digested the weekend news. I'd suggest that Friday's price action was somewhat confused and that nobody could really make their minds up whether the latest developments really were that bearish.

I also suspect that many will have made their minds up on that point over the weekend and come up with the answer: "Bloody hell, they are!" Next week could bring another sea of red across our screens I feel.