The USDA's Sept. 12, 2011, Crop Production report confirmed expectations of a smaller U.S. corn crop than forecast in August, says Darrel Good, a University of Illinois agricultural economist. "The September soybean production forecast, however, is larger than the August forecast, and the forecast size of the foreign wheat, coarse grain, and soybean crops also exceed the August forecasts," says Good.

The 2011 U.S. corn crop is now forecast at 12.497 billion bushels, 50 million larger than the 2010 crop, but 417 million smaller than the August forecast. The lower forecast reflects a U.S. average yield of 148.1 bu., compared to 153 bu. forecast last month. Yield expectations were reduced by 10 bu. in Iowa, 9 bu. in Illinois, 6 bu. in Missouri and Nebraska and 5 bu. in Indiana, Kansas and Ohio, he says.

Forecast yields were increased for a few states, including Michigan. The U.S. average yield projection is near the average market expectation, says Good.

In a separate report, the USDA's World Agricultural Outlook Board increased the estimate of corn consumption during the year ended Aug. 31, 2011, by 20 million bushels (10 million each for domestic processing and exports). Sept. 1, 2011, corn stocks are now forecast at 920 million bushels, he says.

"Actual stocks will be revealed in the USDA's September Grain Stocks report to be released on Sept. 30," he says.

For the current marketing year, the smaller production forecast forced a reduction in the projected level of consumption and year-ending stocks. Projections were reduced by 200 million bushels for feed and residual use and 100 million bushels each for domestic processing and exports, Good notes.

Sept. 1, 2012, stocks are projected at 672 million bushels, and the 2011-2012 marketing year average farm price is projected in a range of $6.50-7.50, 30¢ higher than the August projection and well above the $5.20 average of the past year, he says.

"The forecasts of corn production in 2011-2012 were increased for Argentina, Brazil and the Ukraine, but reduced for Egypt and Canada. The projection of ending stocks outside of the U.S. is slightly larger than projected last month, but smaller than stocks at the beginning of the year," Good says.

The U.S. average soybean yield is now forecast at 41.8 bu., 1.7 bu. below the 2010 average, but 0.4 bu. above the August forecast. The yield forecast was unchanged for Illinois, was reduced by 1 bu. for Indiana and Iowa and was increased for Michigan (3 bu.), Minnesota (1 bu.), Nebraska (3 bu.) and Ohio (2 bu.), he says.

The 2011 U.S. soybean crop is forecast at 3.085 billion bushels, 244 million smaller than the 2010 crop, but 29 million larger than the August forecast, he says.

The USDA's September World Agricultural Supply and Demand Estimates (WASDE) report reflected an increase of 5 million bushels in the projection of the domestic soybean crush during the year ended Aug. 31, 2011, Good says.

"For the current year, the projection of U.S. exports was increased by 15 million bushels. Stocks of U.S. soybeans are expected to total 225 million bushels on Sept. 1, 2011, and 165 million on Sept. 1, 2012," he says.

The 2011-2012 marketing year average farm price is projected in a range of $12.65-14.65, 15¢ higher than the August forecast and well above the $11.35 average of the past year, Good notes.

The forecast of 2011-2012 foreign soybean production was increased marginally (0.4%), as was the projection of year-ending stocks outside the U.S. Those stocks, however, are expected to be smaller than at the beginning of the year, he says.

"Taken together, the September USDA reports are negative for near-term soybean price prospects. Many observers, however, believe the soybean production forecast will be reduced in October," he adds.

Good says that the reports were generally supportive for corn prices. Some analysts interpreted the USDA's sharp reduction in the forecast of corn consumption as a sign of significant demand weakness, he says.

"The reduction, however, was more a statement of availability. Some corn demand weakness is anticipated in 2012, but for now, prices will have to stay high in order to trim consumption. There is also some expectation that the October production forecast will be slightly smaller than the September forecast," Good says.