With America enjoying as good a feed crop growing season as one could possibly ask nature for, very few crop acres were abandoned and both corn and soy yields may come in above USDA estimates, which in most years were a best case scenario.

China has not yet come into the market to buy US corn, causing it to slowly drop from the US$4.80/bushel range a few weeks ago to below US$4.60/bushel today. But barring serious background liquidity problems, corn cannot fall more than 10% below this level beyond the medium term for one simple reason: Its reduced profitability will make any further price fall profoundly reduce its upcoming Latin American acreage and next year's US acreage.

Although feed crop input costs have also fallen, in the case of corn, this is dwarfed by the 40% price fall it has suffered from its first quarter highs. Assuming a USDA projected crop yield of 159.5bushels/acre, the price drop from US$7.30/bushel in the first quarter to US$4.60/bushel today reduces corn revenues by approximately US$431/acre.

At the same time, Australia's Macquarie Group estimates that this year's fall in potash prices at most, reduces corn growing costs by no more than US$18.50/acre. With the cost of other inputs remaining roughly constant, even under the most optimistic scenario, falling prices for potash and other fertilizer components would slash farm costs by at mostUS$30/acre.

At US$4.60/bushel, that makes for profit margin that is US$400/acre lower than six months ago. Compared to year ago when corn was US$8.00/bushel, margins have fallen by more than US$542/acre.  Macquarie concluded that the drop in corn prices, "implies that farmer incomes will remain strained next season."

Barring any upward movement in prices, that will definitely cause both US and Latin American farmers to pull back from the record acreages they have planted in recent years. Although it is too late for the American farmer to plant a more profitable crop in place of corn, that is not the case in South America, where farmers are looking over their shoulders at the lower corn prices, and will adjust their corn and soy planting intentions accordingly.

But at this point, the real question is that of ending inventories. With the planted area fixed at this time, the focus is entirely on yields. Corn crop yields generally assume the USDA calculation of 159.5bushels/acre to be correct. Nevertheless, with the eastern half of America's corn belt looking moist and fertile and the western half still looking (despite good rains) somewhat parched from last year's drought, there is considerable uncertainty.

With the USDA's current yield being the analyst's average at this time, estimates range from 150bushels/acre to 166bushels/acre. A 150bushel/acre yield would boost closing inventories from 2012-13's 18.5 million tonnes to just 28.7 million tonnes in 2013-14, and a still very low stocks-to-use ratio of 8.9%. The USDA's 159.5bushels/acre yield would result in a 49.77 million tonnes closing 2013-14 inventory, and a 15.4% stocks-to-use ratio –still on the low side, but enough to keep prices below US$5.00/bushel so long as Latin America's crop is adequate.

But a 166bushel/acre crop yield would result in a 64.2 million tonne 2013-14 closing inventory and stocks-to-use ratio of 19.8%. At that point, unless South America plants considerably less corn or has a far poorer harvest than it has in recent growing seasons, it would difficult to see corn rising above US$4.70/bushel for at least one or more marketing years.

Over the medium term, with China's Dalian corn futures at 9.89/bushel, the 113% price difference between China and CBOT corn makes the temptation to import irresistible. While China opted to only buy 1 million tonnes last week, it is probably playing a wait-and-see game, hoping the price can fall another 5% to 8% before it decides whether to import more.

This tension and expectation of further Chinese corn imports can be seen in the disconnect between Dalian futures and cash corn, with futures falling under price pressure from CBOT corn futures, which were selling for less than half of Dalian futures. At the same time, with livestock farms and deep processors coped with the reality of dwindling supplies and lower corn reserve levels than a year earlier, causing cash corn's price to rise.

China's short-term corn import considerations notwithstanding, with US corn inventories exerting more pull on CBOT corn's price than any other factor, the 11% variation between the highest and lowest corn yield estimate leads to a 122% difference in closing inventory estimates. With the US having entered this growing season with an astonishingly low corn inventories to begin with, the golden grain's price dynamics now hinge on how high or low the overall crop yield will push corn supplies.