USDA's September crop report may have understated demand for corn, while overestimating average corn and soybean yields, according to analysts at a CME Group press briefing.

USDA estimated U.S. corn production at 12.1 billion bushels, and soybean production at 2.93 billion bushels. Corn yields were estimated at 152.3 bushels per acre, down 2.7 bushels from August. Soybean yields were estimated at 40 bushels per acre, down a half bushel from last month. Feed and residual use for corn was lowered 100 million bushels, while ending stocks were lowered 115 million bushels.

David Hightower, an analyst with the Hightower Report, says that the 100 million bushel drop in feed stock demand estimated by USDA “has simply not take place. The demand reductions in corn due to livestock are misstated.”

Hightower said USDA “started out early in the year with the belief that economic conditions and high prices were going to dramatically reduce consumption in the feed area.”

But corn prices have dropped significantly since earlier highs and this has stirred demand, not slowed it, says Hightower.

“When we get to the end of the year, we're going to find out that corn ending stocks will be lower than the billion bushels USDA projects. The question is whether the yield we came in with is going to hold or fall even lower.

“There are some sources starting to speculate that this report for September is really like an August report because of the delays in planting and the adverse weather. So next month's report may be much more significant and will set the tone for next year.

“We still have a very significant battle for acres set up for 2009,” Hightower added. “In terms of ending stocks in beans and corn, it's going to be difficult to get the acres we need in all areas. The stocks-to-use ratio in corn is close to 8.1 percent, the second lowest in history. So while we may find comfort that we have 1 billion in ending stocks, I think that number will come down because of additional production losses and an understatement of demand.”

Forecast soybean yield could end up lower than USDA projected as well, according to Hightower. “Even though we've had rain in the last week of August and the first week of September, if you take 25 cities throughout the Midwest and look at what happened in August, they had almost no rain. Even though the crop is a little delayed, a big question is whether the pods in the top of the plant will even fill out. We'll probably see the bean yield come down again in next month's report.”

According to Greg Wagner, Ag Resource Co., “pod counts for soybeans are substantially below where they were last year. I think we are ultimately going to see a sub-40 bushel average yield and I think we will be back in a situation where we basically have pipeline supplies. This is likely to be aggravated by the delays in the harvest.”

With the strong demand in corn, “there is very little comfort from an end user standpoint to be found in the ending stocks level of a billion bushels,” Wagner said. “If we start projecting into 2009, we're going to have a very tense battle for acreage.”

Wagner believes the market “will be able to decouple the grain and oilseed markets from some of the liquidation that is going on in the macro-markets. We are down 40 percent in open interest in soybeans, 35 percent in wheat and 20 percent in corn. Ultimately fundamentals will reassert themselves. This may be the first shot across the bow.

“September soybeans may prove to be a big surprise,” Wagner said. “On the other hand, with high input costs for corn, if we are indeed going to entice 5 million or more acres into production, it is going to require higher prices. It's not a question of if, but when that process begins.”