Commodity prices are back on the rise after they fell quickly in reaction to the earthquake, tsunami and nuclear crisis in Japan, Purdue Extension Agricultural Economist Chris Hurt says. Corn fell 10% in the first few days after the earthquake and tsunami, and soybeans and lean hogs were down 6%.

"However, markets have recovered those early losses as the effects aren't nearly as negative as we initially thought," he said Tuesday (March 22). "That's due in part to the fact that Japan is a wealthy nation and its people will continue to consume their normal products."

The impact on food likely will center on a reduction in Japan's production. But Hurt says it likely will be small and mostly can be replaced by importing processed goods from other countries.

Japan is the fourth-largest buyer of agricultural products from the U.S. The USDA estimates that Japan will spend $13 billion on U.S. commodities this year. It is the largest U.S. corn buyer at 580 million bushels annually, the largest pork buyer by volume at 1.28 billion pounds, the third-largest beef buyer by volume at 351 million pounds and the fourth-largest soybean buyer at 92 million bushels.

With production and processing capacity reduced, Japan will buy more finished goods from the rest of the world. The shift could favor U.S. food manufacturers, livestock producers and meat processors but likely will somewhat hurt bulk shippers such as grain farmers.

The challenges will come from infrastructure damage that will disrupt food imports, processing and delivery. But even with those reductions, Hurt says the total volume of food consumption in Japan would change very little.

"Japan cannot produce all of its own food, so it is a major importer even under normal circumstances," he says. "Japan also is a wealthy country and will buy any food shortfalls. Donations and assistance from the rest of the world also will help keep food supplies flowing. Ultimately, there will be almost no impact on the total amount of food consumed in the world."

Instead, Hurt says, any effects on food consumption will be linked to world economic growth in light of the disasters. And much of the market uncertainty will be linked to potential nuclear contamination that could take some Japanese land out of production for long periods.

"Markets have considerable history observing the impacts of natural disasters around the globe, but nuclear disasters and their implications are much more uncertain," he says. "Markets often move lower as uncertainty rises."

Historically, markets have had a downward overreaction immediately following disasters but have recovered as situations become more certain. If the Japanese can control the nuclear crisis, the market effects could be minimal. If the crisis continues, it could hurt the Japanese economy and possibly economies worldwide.

"The first thing we need to look at is the potential impact on the Japanese economy and whether the events will slow overall world economic growth." Hurt says. "Slower world economic growth would result in weakened demand for agricultural products."

The Japanese economy accounts for about 9% of total world economic activity, but the situations in Japan could slow that in the short-term. In the long run, rebuilding will stimulate the economy.

Because Japan's economy is highly integrated with other major world economies, such as the U.S., the conditions will lead to disruptions in supply chains.

"The effects of supply chain disruption are more difficult to evaluate, but it could slow the rate of world economic growth a few tenths of a percent from the current International Monetary Fund projection of 4.4% world growth," Hurt says. "Those reductions likely will fall in the second and third quarters of 2011."