The agency did lower its expectations of corn and soybean yield and production from July, as expected. But the analysts say USDA will be making further adjustments in September. The August report was based on crop conditions as of August 1 before excessive heat set in over the Midwest.

“In the first 10 days of August, we have seen temperatures in the Midwest averaging 6-12 degrees above normal,” said meteorologist Dave Streit. “We have also seen below-normal precipitation. As a result of that, there have been declines in crop yield potential of about a half a bushel for soybeans and corn.”

In the August report, USDA projected a 2.867 billion bushel soybean crop, down from last month, but still a record, and a 9.266 billion bushel corn crop, down from last month and last year.

“This report is friendly,” grain analyst Rich Feltes said.

And if history is any clue, it’s not over yet. “Last year, from this point on, corn yields came down five bushels and bean yields came down 2.7 bushels,” he said. “The major risk as we move forward is whether the weather of the past two weeks continues.”

Feltes says a five-bushel reduction would push corn stocks to 1.1 billion bushels, “which suggests that $2.30 corn is under-priced. End users are at risk and there is no reason for them to be holding back and sustaining this hand to mouth buying pattern.”

In addition, global grain stocks are 99 million tons below what they were two years ago. “So world stocks are declining. We still have a lot of old crop corn to move, but there is a lot of uncertainty about the new crop.”

“Longer term issues in corn are starting to become more constructive,” said analyst Greg Grow. “Export demand has picked up over the last few weeks. Lower prices certainly had something to do with that. But in my eyes, the expansion of ethanol production in this country in the next 12 to18 months, coupled with a fairly stable livestock industry that may be expanding will increase our demand and lower our ending stocks.”

“Weather is still important for soybeans as we go into pod fill over the next two weeks,” Grow added. “But I think the damage has been done for corn in the western part of the Corn Belt. I think we’re going to see some end user interest in our market.”

e-mail: erobinson@primediabusiness.com.