Corn prices pushed up against the $4-per-bushel mark as USDA cut its 2006 corn production estimate by 210 million bushels late last week. Futures on the Chicago Board of Trade ran limit up (20 cents per bushel) on Friday. The market closed at its highest level in more than a decade. July corn futures moved well beyond $4 per bushel.

It's easy to see that the market was surprised by USDA revising its final 2006 corn crop to 10.535 billion bushels, (down from December's 10.745 billion bushels). Corn market analysts now emphasize that world corn stocks are at an all-time low. Ethanol production and export demand have drained reserves — and there's more to come.

Some analysts are now looking for corn prices to top $5 a bushel, as world demand and ethanol production placed corn demand into a new paradigm. USDA increased the forecast of U.S. corn exports for the current marketing year by 50 million bushels, to a 17-year high of 2.250 billion bushels.

Those same analysts are now saying that the growing demand will result in signifcantly more corn acres planted by the 2009 crop year. Projections are for a 2.15 to 2.2 billion bushels this year, but 3.7 billion to 4 billion bushels next year. However, nearly all of that increase is scheduled to go toward ethanol use.

"Significant price volatility, particularly for corn, will be associated with the next planting and growing season," says Darrel Good, University of Illinois Extension marketing specialist.

In USDA's recent report "the January corn yield estimate was five bushels or more below the November forecast in Kansas, Minnesota, Nebraska, South Dakota, and Wisconsin. The yield estimates were reduced two bushels in Illinois and Indiana and increased by three bushels in Iowa." The November-to-January decline in the U.S. yield estimate was the second largest in the past 32 years.

Year-ending corn stocks are projected at an 11-year low of 752 million bushels.

For soybeans, the January estimate of the 2006 U.S. crop was a record 3.188 billion bushels, but 16 million below the November forecast. The change reflected a 0.3 bushel reduction in yields and a 97,000 increase of harvested acreage. "Harvested acreage was a record, 74.602 million, 3.351 million more than in 2005," says Good. Export forecasts was cut by 25 million bushels, but at 1.12 billion bushels, exports are still expected to set a record.

U.S. soybeans stocks at the end of the current marketing year are forecast at a record 575 million bushels.

With annual soybean consumption at the current level of 3.066 billion bushels, and with a 2007 average yield close to those of the past two years, soybean acreage could decline by 10 million in 2007 without dropping 2007/2008 marketing year ending stocks below 250 million bushels.

Good adds that if March 2008 soybean futures hold around $7.70 per bushel, Brazil will likely increase its next round of soybean plantings significantly.