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USDA report seen bullish on production estimates

Today's USDA Supply-Demand estimate shows little change in corn production from last month, raising its estimate of corn production by just 10 million bushels from September to 13.318 billion bushels. A lower yield estimate was offset slightly by higher acreage.

The trade's average pre-report guess for U.S. corn production was13.466 billion bushels with a 157.65 per acre yield. The USDA's September estimates were 13.308 billion bushels and a 155.8 per acre yield estimate.

Although the production estimate hasn't changed much, USDA did raise its projection of 2007-08 ending stocks to 322 million bushels this month on larger supplies and lower domestic consumption which more than offset an increase in projected exports.

Soybean production is forecast down 21 million bushels to
2.598 billion due to this month's acreage reductions. Planted
and harvested area are both lowered 0.4 million acres.

The average pre-report trade guess for U.S. soybean production was 2.648 billion bushels with a yield of 41.95 bushels per acre. The USDA's September estimate was 2.619 billion bushels and 41.4 bushels per acre.

U.S. wheat ending stocks for 2007/08 are
projected at 307 million bushels, down 55 million bushels from last month, reflecting lower production and higher use as an increase in projected exports more than offsets lower projected feed and residual use. If realized, this year's ending stocks would be the lowest since 1948/49. Production is lowered 47 million bushels this month based on the latest production estimate from the Small Grains
Summary report.

Don Roose of U.S. Commodities in West Des Moines, Iowa sees the report as bullish because its production estimates were below trade estimates for corn and soybeans.

U.S. Corn production estimated at 13.318 billion bushels was below the pre-report average guesses of 31.466 billion bushels.

"They caught the trade leaning bearish," Roose said.

"It's really do you want to look at the ending stocks or the production. We're going to look at production," Roose told Agriculture Online. He's calling corn futures 7-10 cents higher on the open.

USDA's estimate this month on soybeans was 2.598 billion bushels, which was also below the trade guess average of 2.648 billion bushels.

"The government did lower harvested acres by 500,000," Roose said.

He's calling soybeans 10-15 cents higher on the open.

"This is a supportive report for both corn and beans and for wheat," said James Barnett of MF Global at a press briefing organized by CME Group.

The fact that USDA lowered its estimate of U.S. Corn yields by 1 bushel per acre, to 154.1 bushels per acre "implies possible reductions in future" reports, he said. That yield estimate was also lower than the average pre-report estimate of 157.7 bushels an acre.

In the soybean market, the USDA lowered its estimate of harvested acres by 500,000 acres from last month's report and cut planted acres by 400,000 acres.

"There's still a big fight for acres in 2008," Barnett said. MF Global is expecting soybean acreage in Brazil to increase by 5% to 8%, he said.

Jack Scoville of Price Futures Group agreed that the report is supportive for futures prices for corn, beans and wheat.

"For now, it does imply that wheat prices should continue to hold higher," he said. "There's nothing here that implies we need to go down right away, at least in the wheat market."

Today's projection of ending corn stocks approaching 2 billion bushels "would tend to limit upside projections" on new crop prices, Scoville said. The trade had expected stocks to be projected at 1.965 billion bushels. USDA's projection was slightly higher at 1.997 billion bushels.

The report is supportive to old crop corn futures, Scoville said. "The lows we've been having in September will probably hold," he said.

USDA's projected ending stocks of soybeans, 215 million bushels, was below the trade estimate of 229 million bushels. That, too, is supportive to prices "at least until we get a much better idea of what's going on in South America," he said.

Alan Kluis of Northland Commodities in Minneapolis also sees Brazil’s current soybean situation as supportive of the market.

"They’re only about one percent planted versus normally five percent," said Kluis, who manages marketing for a farm in Brazil that he has invested in.

It has been dry in Mato Grosso, Brazil's largest soybean producing state, and Brazilian farmers normally wait for rains before planting.

Planting delays will also increase likelihood of yield losses from rust, Kluis said. And they will delay harvest, which will keep opportunities for U.S. Exports going longer next year.

Today's USDA Supply-Demand estimate shows little change in corn production from last month, raising its estimate of corn production by just 10 million bushels from September to 13.318 billion bushels. A lower yield estimate was offset slightly by higher acreage.

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