Big drop in USDA’s corn crop estimate surprises industry

Dropping yield numbers have created quite a stir in the markets.

After Friday’s USDA report the crop farmers will be harvesting today are much more valuable. Compared to last Monday, the corn is up over a dollar and the beans are up $1.25.

The big drop in both the corn yield and production estimates in October’s National Agricultural Statistics crop report caught the industry by surprise, according to John Anderson, an economist with the American Farm Bureau Federation.

“Folks were expecting to see a drop in average yields from last month’s report because of poor late-season weather conditions across much of the Corn Belt, but nobody was forecasting this big of a drop in the corn crop,” Anderson said.

USDA forecasts corn production at 12.664 billion bushels, down 3.8% from the 13.16 billion production forecast last month and lower than last year’s record 13.11 billion bushel crop.

“This is a pretty sizable drop in production,” Anderson said. “We saw a really big drop in USDA’s forecasted average yield for corn because of adverse weather in the big corn states of Illinois, Iowa and Indiana. USDA is forecasting a national average yield of 155.8 bushels per acre, compared to 162.5 bushels per acre in September’s report. A 6.7 bushel drop in yield is pretty significant.”

The smaller-than-expected corn crop and the lowest stocks situation since 1995 prompted USDA to forecast a market year average cash price of around $5 per bushel – up 60 cents from last month’s price forecast.

“Corn producers will welcome the higher price, but livestock and dairy producers will have to pay more than they expected to for feed,” Anderson said.

While corn growers welcomed the market rally, the National Corn Growers Association also pointed out that there is still plenty to corn to meet the needs of the world.

“Our farmers are working hard to bring in a great crop this year, despite the many challenges,” NCGA President Bart Schott, a grower in Kulm, N.D., said. “We have had many reports of lower yields and, at the same time, are hearing stories of higher-than expected yields in some areas. This may not be a record year, but we’re bringing in the corn and meeting all needs, even for our export markets.”

Corn use for the 2010 marketing year is projected at 13.5 billion bushels. Beginning stocks of 1.7 billion bushels help ensure all needs are met.

“A global perspective is important,” Schott said. “Global coarse grain supplies are nearly unchanged, and lower U.S. supplies are offset by increased foreign grain production. We expect farmers in South America to respond to these market signals, just as we know U.S. farmers will do when it comes time to make planting decisions for the 2011 crop.”

Schott noted that, as of Oct. 3, only 37% of the U.S. corn crop was harvested and that much of what has been harvested to date was in the areas most adversely impacted by the summer weather. NCGA sees the potential for an upward adjustment in the overall production number as the harvest is completed.

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