The USDA updated the U.S. and World balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) report on Tuesday. Reports have been coming in about lower U.S. corn yields by many farmers across the country due to a wet June and a dry August. This is what led the USDA to make another reduction in the U.S. corn yield to 154.3 bushels per acre from 155.9 bushels per acre last month. Last year the U.S. corn yield was 162.5 bushels per acre. U.S. ending corn stocks were decreased again by the USDA, down to 827 million bushels which is well below the critical 1 billion mark.

Corn

Bullish news as the 2010/11 U.S. corn production was decreased by 124 million bushels to 12,540 million bushels due to lower yields across the country. Feed and residual use was estimated 100 million bushels lower, which was paired with a 50 million bushel reduction in exports due to higher prices, but ethanol usage was increased by 100 million bushels sending the ending stocks 75 million bushels lower to 827 million bushels.

Ending domestic stocks will be the lowest since 1995/96, and the ending stocks to use ratio will be at a very low 6.2% here in 2010/11. The USDA season-average farm price for corn is estimated at $4.80 to $5.60 per bushel, a midpoint increase of 20 cents and the highest season-average ever.

World corn production was lowered 1.1 million tons to 818.52 million tons due to lower production in the U.S., partially offset by a 2.0 million ton increase in Chinese corn production due to higher 2010/11 area. Global corn ending stocks were estimated 2.3 million tons lower to 129.2 million tons, which would mark the lowest since 2006/07.

Soybeans

Soybeans continued the bullish theme, as the USDA reduced its estimate of U.S. soybean production by 33 million bushels to 3.375 billion bushels due to a large reduction in U.S. yields. The USDA estimated average U.S. soybean yields of 43.9 bushels per acre, a drop of 0.5 bushels per acre from last month.

2010/11 exports were again increased by 50 million bushels to 1.570 billion bushels on strong export sales, especially from China who accounts for 70% of all U.S. soybean exports through October. The elevated exports reduced ending soybean stocks to 185 million bushels, a decrease of 80 million bushels. The USDA season-average farm price for soybeans is estimated at $10.70 to $12.20, up 70 cents from last month.

Global soybean production was estimated at 257.4 million tons, up 2.1 million tons, primarily due to a 2.0 million ton increase in Argentina as farmers responded to higher soybean prices. Production was also increased in Brazil, India, and South Korea which helped offset the reduction in U.S. production.

Wheat

U.S. 2010/11 wheat ending stocks were decreased to 848 million bushels because of the slightly lower average yield estimate of 46.4 bushels per acre from 46.7 bushels per acre last month. Exports and domestic usage remained unchanged in the report. The USDA season-average farm price for wheat is estimated at $5.25 to $5.85, up 5 cents from last month’s estimate.

Total world wheat production was estimated at 642.89 million tons, up from last month’s estimate of 641.44 million tons due to increased production in Argentina, Australia, EU-27 and Paraguay. Global ending wheat stocks were decreased by 2.15 million tons to 172.51 million tons primarily due to the increased consumption. Global consumption of wheat was raised 2.5 million tons for 2010/11 with higher expected feed use for China.

Overview

Grain supplies are becoming extremely low. The 1 billion bushel ending stocks mark for the U.S. is a critical point, but now ending corn stocks are over 17% below 1 billion bushels.

Another factor to keep an eye on will be La Nina’s affect on South American crop production this spring. If La Nina produces more dry weather before the March harvest in South America, expect production to decrease. Brazil and Argentina produce 50% of the world’s soybean supply alone.

In 2008 La Nina hurt Argentinean soybean production, but the U.S. was able to offset it. Today the U.S. wouldn’t be able to offset such a reduction in Argentinean soybean production due to such low domestic stocks. This could eventually lead to an increase in corn prices here in the U.S. if more acres are going to be allocated to soybeans.

Click on the link for the full WASDE report: http://www.usda.gov/oce/commodity/wasde.

- Colvin