US commodities markets were down sharply on news that China may take further action to cool its booming economy. Hardly anyone noticed China’s interest rate hike last month. What could slow the long-booming behemoth? This week’s 0.5 per cent increase in bank reserve rates and the report that China’s October inflation rate was 4.4 per cent — and that food inflation was 10.1 per cent in October — did get traders’ attention, though. Whether these actions or fear of more Draconian moves were the more important factor in Friday’s US futures market break, we will not know for awhile. But limit-down corn and soybeans (save for the nearby November soybean contract, which lost “only“ 67-1/4 cents) and sharply lower Lean Hogs and Live Cattle futures underscore how volatile these markets are. Whatever the reason, we are reminded of the driving principle of anything regarding China according to our friend, Dr. Bill Lapp of Advanced Economic Solutions: 1.3 billion times any number is a GREAT BIG NUMBER. And big numbers have big impacts when they change!

There are several questions whose answers are key for this week? First, did Friday’s break confirm that a top is in for corn and soybeans? Corn futures prices went below their 10-day averages earlier in the week but as of Friday, though down 60 to 80 cents/ bushel since Tuesday, have not broken below their respective 50-day moving averages. Soybean futures contracts all went below 10- day averages on Friday. Second, will the commodity funds unwind a portion of their large long positions and, if they do, just how far will they go? Any significant action could push prices lower yet. Third, how active will end-users be at these lower prices? There are a lot of cattle feeders, hog and broiler producers who are lamenting the harvest-season price run-up. Some have little or no protection, hoping for a price break. Now that they have one, how fast will they act? Hoping for $4 corn may be a huge obstacle to overcome if the market says to buy $5.25 corn. It should be an interesting week.

USDA released September export data on Friday indicating year-on-year growth for beef exports but the third straight month of year-on-year export decline for pork. US pork exports totaled 322.21 million pounds carcass weight in September, 7.8 per cent lower than one year ago. Year-to-date pork exports now stand at 3.079 billion pounds carcass, still 3 per cent higher than last year. US exports were up 7.3 per cent for the year through June but have lagged last year the past three months. Japan remains our largest pork customer, importing 91.2 million pounds in September, 2.9 per cent less than last year. 2010 shipments to Japan are now only 0.7 per cent larger than those of Jan-Sept 2009. Shipments to Mexico fell from August to September and were 11.6 per cent lower than last year, likely due to some “stocking up“ a year ago in the wake of H1N1’s negative impact on Mexican pork demand. Exports to Mexico are up 17 per cent for the year. Of particular concern are exports to Korea which declined again in September, were 31 per cent lower than last year and are 16 per cent lower year-to-date. And it appears that President Obama made no progress on pushing the US -Korea Free Trade Agreement during last week’s summit.

US beef exports, at 185.57 million pounds, were down slightly from August but were 14.3 per cent higher than one year ago. September’s exports bring the 2010 YTD beef figure to 1.654 billion pounds, 16.8 per cent higher than last year. It doesn’t take a lot to see quickly the major challenge facing US beef exports: Declining shipments to Mexico. These have been falling rather steadily since the start of the recession and are down 25.7 per cent YTD versus 2009. Mexico was still the largest destination for US beef in September — barely. Canada, Japan and “Other“ made it pretty much a dead heat. Korea has accounted for roughly half of the growth of US beef exports this year and are 132 per cent higher YTD through September. Though exports are higher to Korea this year, the beef industry would benefit greatly from the Korea-US FTA, too.