Please Return To Your Seats And Keep Your Seat Belts Fastened

01/12/10 -- New month, new money. So goes the saying. It certainly seems to be holding true this morning with the overnight Globex trade 16-18c higher on wheat, 10c up on beans and 5-6c firmer on corn.

Be careful what you wish for seems to sum things up in Australia as the potential bumper wheat crop in the east turns to mush. With the harvest running around 3-4 weeks behind schedule incessant rains are turning what looked like a crock of gold into a crock of something a whole lot less savoury.

"We have a natural disaster developing at the moment," says this observer. "Queensland already had a lot of downgraded grain. This is a cancer creeping south."

They don't have such problems in Western Australia, where the harvest is already about two-thirds complete. Here the damage was done months ago, with drought slashing wheat production by more than half to around 3.5 MMT from 8.25 MMT last season.

Meanwhile in America we have only 47% of the winter wheat crop rated good/excellent, the lowest in years and well below the 63% level of a year ago.

Fast forward to Argentina and Brazil where Mother Nature is also providing local farmers with what is looking like another difficult growing season. The kind of fast-maturing soybeans that they plant here need soaking rains on a regular basis, but they simply aren't getting them.

Highly-regarded private analyst Michael Cordonnier yesterday became the first to cut his soybean production estimates for the coming season, knocking 1 MMT off output in Argentina and 0.5 MMT off for Brazil. Combined he now sees production there 2.5 MMT less than the USDA's estimate last month.

Is Argentina gearing up for a repeat performance of two years ago when La Nina slashed soybean production to just 32 MMT?

Normally they would have 80-85% of their soybeans planted by now, currently it is little more than 50%, and what has gone into the ground is struggling to germinate with only scant rains and temperatures already pushing into the mid-90's.

Skip to Russia where winter plantings are down 20%. These crops were sown a month or more later than normal due to drought, and are now slipping into winter dormancy in a stunted state of development.

"Wheat having weak roots would be subject to damage from soil erosion. Moreover, when wheat is planted very late it has less time to achieve maximum hardiness to cold making winter kill more likely," warn Martell Crop Projections.

The world isn't well placed for a crop disaster of any significant magnitude in 2011. Australia's difficulties are beyond help. An escalation of the problems in the US, South America and/or Russia might mean significantly higher prices yet.