USDA's first estimate for new crop is in, and the biggest surprise is a lower average yield projection for U.S. corn production — 150.3 bushels per acre.

“Many in the trade were estimating 152 bushels to 156 bushels,” said Kent Beadle, with Country Hedging, speaking at the Minneapolis Grain Exchange May conference call.

The estimate “probably reflects the slow planting progress, and that we have areas of the country that are probably wetter than normal for this time of year, particularly in parts of Iowa and in Missouri, where there are significant flooding issues.”

Feed use for corn, forecast 150 million bushels lower for 2007-08, reflects the impact of high corn prices. “But I may take issue with that. I see profitability in most hog, cattle and poultry sectors, so I don't think feed usage should be dropped to that extent.”

USDA raised corn usage for ethanol to 3.4 billion bushels, but reduced exports to 1.975 billion bushels.

“Carryout is a bit of a surprise to the trade, at 947 million bushels. A number under a billion bushels, with the kind of usage we have in corn, suggests we have no tolerance whatsoever for any yield loss this coming year. Otherwise, we will see sharply higher prices once again.”

USDA moved old crop corn ending stocks higher in May, based on weaker old crop demand. USDA lowered food, feed and industrial use outside of ethanol by 10 million bushels and lowered exports 50 million bushels, to 2.2 billion bushels.

The result is an old crop carryout sitting at 60 million bushels higherthan last month, at 937 million bushels. “That's a little higher than the average trade guess. However, with the severe selloff we've had in corn, a lot of the increase in ending stocks has already been (absorbed) by the market. In the short-term, we're likely to see more interest in selling a rally in this market than there will be a lot of new longs getting in.”

A 5 million bushel increase in soybean crush for old crop soybeans reduced old crop ending stocks to 610 million bushels. “This is an extraordinarily large number, but it's a large number we've been looking at all year long,” Beadle said.

USDA projects new crop soybean plantings at 67.1 million acres, which is in line with USDA's March planting survey. An average yield of 41.5 bushels would produce a crop of 2.745 billion bushels.

Ending stocks for 2007-08, at 320 million bushels, “is almost half of our old crop ending stocks estimate, however it's still quite adequate and requires almost no rationing of price,” Beadle said. “We likely will remain firm on our price. We're going to look out a year from now and realize that corn is going to have to pick up even more acres.”

Globally, world soybean carryout was raised slightly despite projected lower U.S. production, to 61.8 million tons. “That's the largest number we've seen in a very long time. It's due to higher ending stocks projected for Brazil and Argentina.”

USDA lowered old crop wheat ending stocks by 10 million bushels, due to a 10 million bushel increase in exports, which included 5 million bushels of hard red winter wheat and 5 million bushels of hard red spring wheat.

USDA estimated total new crop wheat acres at 60.3 million acres. “Estimated yield of 41.7 bushels per acre, “is a little higher than some in the trade were looking for.”

Feed and residual use is higher for new crop wheat. Exports of 975 million bushels are also higher. “This is definitely a good pickup in usage,” Beadle said. “Even though production is a little higher than anticipated by the trade, the ending stocks number of 469 million bushels is certainly reasonable for the price levels we're currently trading.”

Global ending stocks for wheat are projected lower, 113.3 million metric tons, compared to current stocks of 120.3 million metric tons. “So despite the better than expected production number in the United States, we're seeing another decline in world ending stocks. This tells me we have some upside potential in wheat.”