"Even with the sharp drop in feeding and exports of U.S. corn, stocks at the end of the year are expected to be 558 million bushels smaller than stocks at the beginning of the year," he says. "Ethanol use of corn is expected to increase by 1.1 billion bushels – 37%. Current ethanol crush margins, however, are under pressure as ethanol prices remain low relative to unleaded gasoline prices.

"The 2008-2009 marketing year average farm price of corn is projected in a range of $5-6 compared to $4.20 for the year just ended. The average price reflected by futures prices for the next year is very close to the midpoint of that range."

The 2008 U.S. soybean crop is now estimated at 2.939 billion bushels, 39 million smaller than the August forecast as the U.S. average yield forecast dropped from 40.5 to 40 bu./acre. For the 11 objective yield states, the USDA found a relatively low number of pods per 18 sq. ft., compared to the September count in recent years in Illinois and Minnesota.

"For the 29 states for which yield forecasts are made, the forecast dropped in 14 states, increased in seven states and was unchanged in eight states," says Good. "The largest decline, 4 bu., came in Wisconsin. The yield forecast was unchanged for Illinois and Iowa and was reduced 3 bu. for Indiana and Ohio."

On the consumption side, the USDA increased the estimate of exports during the year just ended by 10 million bushels, but lowered the estimate of the domestic crush by 15 million. For the current year, the domestic crush is expected to decline by 30 million bushels and exports are expected to decline by 155 million bushels.

Exports of soybean oil and both domestic use and exports of soybean meal are expected to decline. The decline in exports reflects the extremely tight supplies of U.S. soybeans and will be accommodated by larger exports from both Brazil and Argentina and by a small reduction in Chinese imports.

The 2009 Argentine crop is now forecast at 1.856 billion bushels, nearly 9% larger than the 2008 harvest. Production is expected to grow by about 2.5% in Brazil.

"Stocks of U.S. soybeans at the end of the current marketing year are projected at a very tight 135 million bushels," Good says. "The marketing year average price is forecast in a range of $11.60-13.10, up from $10.15 for the 2007-2008 marketing year.

"Like corn, futures market prices currently reflect a price near the mid-point of that range."