USDA crop forecasts show more corn, fewer soybeans

USDA’s September 1 crop estimates were released on September 12. Corn yield estimates were bumped 3 bushels per acre from the August 1 report (from 152.8 to 155.8 bushels), raising the estimated 2007 national corn crop from 13.1 to 13.3 billion bushels. This is an increase of 2.8 billion bushels (26.3 percent) over 2006 production. Wisconsin corn production was projected to increase 22 percent, from 400 million bushels in 2006 to 488 million bushels in 2007 is based on 500,000 more acres harvested than 2006 and 5 bushels per acre higher yield.

This large gain in corn production comes at the expense of smaller output of some other crops, notably soybeans. The U.S soybean harvest in 2007 is projected by USDA to be 2.62 million bushels, down about 570 million bushels (18 percent) from last year and slightly less than was forecast on August 1 because of lower expected yields. The 2007 crop will be the smallest since 2003. More than 10 million acres that grew soybeans in 2006 were planted to corn in 2007, accounting for 70 percent of the corn acreage increase.

The market response to the new USDA crop report was predictable for soybeans, but somewhat surprising for corn. Consistent with USDA’s reduction in forecast production between August 1 and September 1, nearby contract futures prices for soybeans on the Chicago Board of Trade (CBOT) gained about 20 cents per bushel on September 12, and soybean oil was up more than 1 cent per pound. But surprisingly given USDA’s larger expected corn crop, nearby corn contracts rose more than 15 cents per bushel on September 12, with the Dec ’07 contract settling at $3.56. CBOT analysts attributed this price gain in the face of USDA’s bullish report to technical trading practices involving price spreads between wheat and corn.

Ed Jesse, Agricultural and Applied Economics