By ANN HINCH

Assistant Editor

WASHINGTON, D.C. — Friday was a surprise for the agricultural market, as the USDA reported a major drop in corn ending stocks for the United States, owing to increased feed and residual usage and lower-than-expected yield in the 2007 crop – and March futures on the CME/Chicago Board of Trade (CBOT) jumped accordingly, up nearly 20 cents over Thursday’s $4.75.

In its January World Agricultural Supply and Demand Estimates report, the USDA cited an increase of 300 million bushels of corn fed to livestock, over its December 2007 ending-stocks estimate of nearly 1.8 billion bushels. Coupled with an overall yield settling of 1.9 bu./acre, the carryout estimate has been dropped to 1.438 billion bushels.

If Purdue University ag economist Chris Hurt were going to weave a story using Friday’s figures, it would be a cautionary tale.

“As we look at this 359 million bushels (decrease), it’s kind of like losing another 2.4 million acres of ’08 crop,” he said. “That (news) was the single biggest surprise of anything we had” in January’s reports.

The real worry, he explained, is even if American farmers enjoy ideal weather this and next year, they may still lag in being able to supply domestic demand from livestock producers, demand from the ethanol industry and demand from overseas customers the country has cultivated. In itself, he said 1.438 billion bushels in ending corn stocks isn’t bad, but with all these growing markets depending on a steady supply of the golden grain, even with a good 2008 crop, carryout figures this time next year may be even lower.

“We have problems of supply shortages in the world if everything goes okay,” Hurt said of the 2008 growing seasons – referring not only to corn, but also soybeans and other feedstocks – adding that there are two critical months left in the Southern Hemisphere growing season during which to worry about weather problems in other countries.

Richard Feltes, senior vice president and director of commodity investment for MF Global, said of Friday’s news, “It’s certainly going to throw the cattle and hog industries, which are already operating in the red, deeper in the red.”

Hurt said in the last quarter of 2007, all major livestock sectors increased their animals – thus, feed usage – “at exactly the wrong time.” The USDA was expecting a four percent increase in pork production; the reality was nine percent. Broilers and cattle production were also stepped up in later 2007, he said, based on summertime cash corn prices being well below what they were last February. In addition, hay and forage shortages last year put more cattle in feedlots, earlier. Dan Basse, president of AgResource, Inc. in Chicago, also said export demand for red meat has been climbing – which may be satisfied in the short-term if cattle producers have to thin herds for lack of feed or sufficient forage this year.

“There’s no wiggle room, here,” Feltes said of the coming growing season. “There’s no margin area here for crop adversity.”

The most immediate threat he sees is to soybean acreage, because growing corn will be attractive again this year, and wheat is also enjoying high prices (CBOT March futures up 27 cents to $9.09 on Friday afternoon), despite USDA reports of a 4 percent increase in U.S. winter wheat acres over 2007.

Too, South American countries, which are in the middle of their soy growing season right now, are experiencing weather problems. Feltes said Brazil’s production seems fine so far, but Argentina has had erratic weather because of La Nina conditions in the Pacific.
“Just as corn did last February … beans’ll have to step up to the plate and go out and grab acreage,” he added.

The U.S. ending stocks for soybeans were down 10 million bushels over the December estimate, to 175 million – the lowest since 2003-04, according to the USDA, but not a surprise for the market. Estimates of 2007 production were down by 9 million bushels, based on slightly lower yield figures.

On Friday, March soybeans shot up more than 38 cents over Thursday on CBOT.

In speaking to an ag group a few days before the Friday reports, Hurt said he’d advised that in the next 60 days, he fully expects to see soybeans gain $2 in one week at some point, and perhaps even $1 in a single day.

“Strap yourself in; it’s going to be an exciting year,” Basse said of the ag futures market.

“Exciting” and “volatile” were words he and Feltes used frequently during a press briefing Friday morning to refer to 2008. At least 2008, if not longer, according to Hurt, who believes it’ll probably take five to seven years for the American crop supply to catch up and even out with the pressures upon it.

“There’s just no ability to produce that much more, that quickly,” he said.

“The trouble is, we can’t get enough acreage.”