Today’s commodities news starts off with bursting warehouses full of zinc, an unexpected rise in cocoa futures, and an equally unexpected fall in corn and wheat prices.

The stockpile of zinc at the bonded warehouses of the London Metal Exchange is at its highest point since 1995, at over 800,000 metric tons. Like its stockpiles, the price of zinc is also relatively high, currently over $2,300/metric ton. Demand is expected to rise by 5.5% in 2011 while supply is expected to rise just 2.2%.

One longer term supply issue is that about 1 million tons of zinc will drop from supply by 2014 as several currently operating mines close down. Leading zinc producers include Teck Resources Ltd. (NYSE: TCK), Xstrata plc (OTC: XSRAY), and Anglo American plc (OTC: AAUKY) among others.

China, both the world’s largest producer and largest consumer of zinc, could be sitting on up to 1.5 million metric tons of refined zinc, which argues for lower imports of the base metal into China. But that’s not what appears to be happening.

Zinc imports have risen in China and the likely reason is that zinc is about to join copper as an alternative financing vehicle. Copper has served as collateral for loans in China for some time now, and it appears that the rising demand for zinc answers the same need. The ability to use base metals as loan collateral depends on a liquid domestic market for the metals. Lead could be next, as the Shanghai Futures Exchange has recently launched a lead futures contract.

Chinese authorities are cracking down on copper arbitrage, but holders are now re-exporting copper. Net imports of copper fell by -31% in the first quarter of 2011, while copper exports rose to a five-year high. As the government staunches the use of copper as collateral, zinc is very likely taking its place, with lead waiting for its turn.

As the political turmoil lessened in Ivory Coast, most traders expected the price of cocoa to fall once exports from the world’s largest producer resumed. Exports have now re-started, if only slowly, but cocoa prices not only remain high but continue to rise.

Part of the problem is that country’s banks have not yet re-opened, and cash-strapped cocoa farmers are smuggling their crops to neighboring Ghana. Another part of the problem is that prices are so low in the interior of the country that farmers only sell when they are desperate for cash.

But the main reason for still-rising cocoa prices is short covering. During the political unrest in Ivory Coast many traders went short anticipating that the end of the fighting would send cocoa prices plunging. Because that didn’t happen, the shorts had to cover, sending the market higher. At about mid-day today, cocoa is trading up $111/metric ton, at $3,279. The shorts are probably looking at prices at $2,500/metric ton or lower.

Stocks with exposure to cocoa prices include the iPath DJ-UBS Cocoa Total Return Sub-Index ETN (NYSE: NIB) which is up more than 3% today at $46.49, within its 52-week range of $37.40-$53.59. Kraft Foods Inc. (NYSE: KFT) posted a new 52-week high today of $33.77, and Unilever plc (NYSE: UL) came with pennies, rising to $32.55 within a 52-week range of $25.74-$32.75.

Finally, corn prices have fallen -$0.30/bushel so far today and wheat futures have fallen a nearly equal amount as traders start to wonder what will happen if the market gets flooded with supply. Russia is expected to resume wheat exports, perhaps in July, and Ukraine has already raised its export quota on corn. Some rain in the wheat-growing regions of China mean that Chinese imports may lag as well.

Stocks with exposure to grains include Archer Daniels Midland Co. (NYSE: ADM) which is down fractionally today, General Mills, Inc. (NYSE: GIS) which is up fractionally after coming within range of a new 52-week high, and Kellog Co. (NYSE: K) which did post a new 52-week high today of $56.84. The Teucrium Corn Fund (NYSE: CORN) is down more than -5%, to $44.15, within a 52-week range of $23.79-$48.77, and the PowerShares DB Agriculture Fund (NYSE: DBA) is down about -1.5%, at $33.61, within a 52-week range of $22.85-$35.58.

Paul Ausick

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