Assistant Editor

WASHINGTON, D.C. — At 31 percent complete by the end of last month, September’s nationwide corn harvest gave the National Agricultural Statistics Service (NASS) enough reason on Friday to confirm parent agency USDA’s Sept. 12 estimate of just over 13.3 billion bushels for 2007 – and add several more million bushels to it, besides.

This is despite a slight drop in expected yield, from 155.8 to 154.7 bu./acre, which James Barnett said ran counter to the ag industry’s expectations. Barnett, a grain and oilseed analyst with MF Global in Chicago, Ill., also noted USDA reined in corn for feed and residuals and ethanol usage in its World Agricultural Supply and Demand Estimates report, also released Friday, by its World Agricultural Outlook Board (WAOB), while raising export numbers.

According to the report, WAOB dropped its ethanol usage estimate by 100 million bushels because of a slowdown in building plants and lower returns for investors due to lower ethanol prices. It also dropped its feed and residuals by 150 million bushels based on decreased domestic use as of Sept. 1.

Higher exports

WAOB did, however, raise projected corn exports by 100 million bushels because of tighter foreign grain supplies and a strong U.S. export market; export projections now represent approximately 18 percent of 2007 estimated production, the highest exports in 18 years. The report stated corn production is projected down in China, Brazil and the European Union. Two weeks ago, the U.S. Grains Council (USGC) estimated this year’s Chinese corn production would be down 250 million bushels from last year.

Barnett was hesitant to accept the USGC report as final authority, since other groups are projecting different numbers – not just from USGC, but from one other. He said the country’s crop estimates are “all over the board” because “it’s really hard to get good numbers out of China. It’s sort of like a black hole.”

He did point out, however, that the United States is already seeing increased demand from South Korea, traditionally a big buyer of Chinese corn, as well as other buyers because of the China situation.

WAOB also raised projected U.S. wheat exports by 50 million bushels for the same reason – given world wheat production estimates are down about 213 million bushels (5.8 million metric tons) from last month – in spite of lowering its forecast for U.S. production by nearly the same number. As with corn, WAOB also dropped its estimate for U.S. feed and residual use of wheat, by 45 million bushels.

“To make room for 50 million more bushels of exports, they really had to play around with numbers of feed and residuals,” Barnett explained, approving because of lower yields (including a slight drop in wheat from September). “The bottom line is, they needed to do it.”

Because of this, WAOB hiked the estimated range for average U.S. wheat prices this season to between $5.80-$6.40 per bushel, 30 cents higher on each end than its September projection. (It also notched up corn prices by a dime on each end, for $2.90-$3.50 per bushel.)

Jack Scoville, a U.S. and Latin America analyst with Price Futures Group of Chicago, expects wheat prices to hold high for now, expecting they could nudge a bit higher because of a weaker dollar. (Friday’s close on the Chicago Board of Trade (CBOT) showed December wheat down sharply to $8.58; one broker told CBOT this was because USDA’s report was quite favorable to the commodity.) Barnett agreed demand will remain high as long as wheat is needed for feed use.

“There’s nothing in (the reports) to imply that we need to go down right away,” Scoville said, adding that farmers should plant plenty of wheat to rebuild supplies. The WAOB report projects U.S. end stocks at 307 million bushels, down 15 percent from its September projection; if this comes to pass, it will be the lowest wheat ending stocks in nearly 60 years.

WAOB projects U.S. ending stocks for corn this year will come in just under 2 billion bushels, up more than 300 million bushels from its previous estimate thanks to decreased domestic use and higher production than previously expected. Scoville said the higher stocks show that livestock producers are trying to find alternatives to corn to keep feed costs down.

Soybeans down

USDA’s October reports for U.S. soybeans didn’t offer any surprises to an industry expecting lower estimates from September. The NASS report forecasts 2.6 billion bushels, down 21 million from September’s projection, and no change in yield.

The decreased projection is, instead, because of a drop in anticipated harvest acres from 63.3 million to 62.8 million; this would be 12 percent fewer harvested acres than in 2006. Combined with a lower yield than last year, this means 600 million fewer bushels than in 2006.

Illinois, Kentucky and Tennessee all saw yield drops between NASS’ Sept. 1 and Oct. 1 estimates, while Iowa and Ohio gained. Both Michigan and Indiana held steady. All seven states are expected to produce sharply lower than in 2006.

Barnett indicated Brazil’s soybean performance still strongly influences the U.S. market. Scoville said he thought USDA’s U.S. estimates “friendly” on the high side, given the number of acres planted, and that prices should stay up at least until the market hears results from South America, whose northern regions have been dry. Soy oil, he added, should stay up and meal should gain, since he believes it’s been underpriced and demand for it is increasing. Barnett said he has seen big increases in biodiesel production and its future rides somewhat on an energy bill Congress is considering.

As for commodities’ effect on inflation, Barnett said the weakness of the U.S. dollar is a strong factor in ag prices, but that food prices have much less effect on inflation here than in other countries such as China and India. He believes grain prices are raising concerns about inflation, rather than the other way around, whereas Scoville sees them feeding on each other. “The definition of inflation is increasing prices of basic commodities,” Scoville said, “and the most basic commodities are grains and oilseeds.”