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The USDA lowered U.S. corn yields slightly, but surprised the market by dramatically increasing stocks. Logic would state that as yields decrease, stocks would follow. But the USDA defies reality and has found a magic bin of 160 million bushels of 2011/12 corn, resulting in an increase of new crop ending stocks by 83 million. U.S. Soybean production and yields dropped this month and U.S. wheat balance sheets are unchanged.

Corn

The average corn yield in the U.S. declined by 0.6 bushels per acre to 122.8 bushels per acre, a slowdown from the 22.6 bushel reduction last month. The USDA's yield estimate was well above the market expectation of 120.5 bushels per acre.

U.S. 2012/13 corn production was forecasted down 52 million bushels due to continued drought across the Corn Belt. Part of the decrease in production and yield was offset by increases and an early harvest in southern states.

Higher feed and residual disappearance for 2012/13 resulted in corn use increasing by 25 million bushels this month. U.S. 2012/13 exports were decreased by 50 million bushels due to competition from South America. Corn season-average farm price has been lowered $0.30 on both ends of the range to $7.20-$8.60 per bushel.

Ending corn stocks for 2012/13 were estimated at 733 million bushels, an 83 million bushel increase from August, and substantially higher than analysts' estimate of 592 million bushels.

2011/12 feed and residual use was lowered by 150 million bushels due to increased availability of new corn as 11 percent of the 2012 crop was harvested by September 1, the start of the 2012/13 marketing year.

Global coarse grain supplies in 2012/13 were estimated to decrease 4.0 million tons, mostly due to the reduction prospects for EU-27, Serbia, Canada, and the United States. Global 2012/13 corn exports were also lowered by 1.8 million tons, with the largest reduction coming from the United States.

Soybeans

2012/13 U.S. soybean production has been projected down 58 million bushels to 2.634 million bushels due to decreased yields in the Midwest. Average soybean yield was projected at 35.3 bushels per acre, 0.8 bushels lower than last month's projection.

Exports for 2012/13 were reduced by 55 million bushels to 1.05 billion bushels due to a reduction in supplies. U.S. 2012/13 ending stocks remain at 115 million bushels, but hit a record nine year low. The 2012/13 average soybean price was unchanged at $15.00 to $17.00 per bushel.

Wheat

2012/13 U.S. wheat balance sheet was unchanged this month with yield at 46.5 bushels per acre, production at 2.268 billion bushels, and ending stocks at 698 million bushels.

The season average wheat price for 2012/13 was projected lower to $7.50 to $8.70 per bushel.

Global 2012/13 wheat supplies were lowered 3.1 million tons mainly due to decreased production in Russia. Global wheat consumption for 2012/13 was decreased by 2.6 million tons due to decreased wheat feed and residual use in Russia and Kazakhstan.

Outlook

Drought has been the main focus in this year's growing season, but as we move into harvest, realized yields will become the primary driver of grain prices. Harvest has started and we look forward to actual yield data, as the USDA's estimated yield is higher than what analysts and we expected.

Source: WASDE: Grain Found Under The Rainbow