Yesterday’s pullback in the markets was more about profit taking than anything. Markets that provide an opportunity to quickly confirm a traders opinion tend to get crystallised at some point during an extended rally. Last night it was back to business – and that business is US rainfall which just keeps coming. There is now no debate over the what-if, the only debate is how many acres have been lost and will not get planted – and, given the forecast, it’s a lot and getting bigger. I sound like a broken record but I can’t emphasise enough that this isn’t just about planted area. Yield will undoubtedly be impacted – as will abandonment which both have the potential to turn the corn balance sheet into a serious problem. The function of price is to ration demand so the balance sheet works. The function of the market is to get price to that level. The interesting component in the corn balance sheet is that one-third of the demand is mandated – ie ethanol production is a requirement that must be filled. The other obvious area that can compensate is exports. Of the 14+ billion bushels of total demand, only a little over 2 billion bushels is exported – yes it can certainly make a difference but, in the context of the potential loss we could be looking at can it do enough work to keep the balance sheet manageable?

Locally new crop prices will firm today – a combination of futures strength and the “what-if” concern to global values makes today an up day. Interestingly, if wheat is viewed in isolation, the global sheets are fine. Yes, they are overly reliant on Russia, yes there is still a lot of risk in both Australia and the US and yes there are pockets of concern such as Canada and parts of Russia. However, the relatively small areas of concern in Russia will not have an impact on their massive crop. Australia is still a concern but we have time and the US is, so they tell me, more about quality rather than quantity. This makes the wheat corn spread an interesting one. Does this spread trade much tighter to ration corn feeding and encourage wheat feeding – does this ultimately help Australian wheat values as the destinations that can lower corn imports and look for more wheat?