Last week’s USDA World Agricultural Supply and Demand Estimates (WASDE) report reduced domestic soybean carryover and left corn and wheat supply/demand projections unchanged, notes Melvin Brees, University of Missouri agricultural economist.

“No changes were made to U.S. wheat supply/demand estimates, and 2008-2009 ending stocks remain at 655 million bushels,” he says. “Minor adjustments to world supply/use projections resulted in estimated world carryover increasing from 148.36 million metric tons (mmt) to 149.96 mmt. USDA’s forecast 2008-2009 wheat prices were increased 20¢ on the low end of the range and are now forecast to be from $6.70 to $6.90/bu.

With no changes to corn supply/use estimates, projected 2008-2009 corn ending stocks remain unchanged at 1.790 billion bushels. This was at the low end of pre-report trade estimates, as most had expected export projections to be reduced and carryover to be increased to about 1.825 billion bushels. USDA’s forecast 2008-2009 corn price range was narrowed by 10¢ on each end. Prices are now expected to range from $3.65 to $4.15 across the board.

“It is interesting to note that some use of grain sorghum for ethanol production contributed to a reduction in grain sorghum ending stocks from 95 million bushels to 65 million bushels,” says Brees.

“Slower feed demand contributed to a 35-million-bushel reduction in domestic soybean crush. However, strong exports caused a 50-million-bushel increased in export projections. The net result was 15 million bushels and left 2008-2009 soybean ending stocks at 210 million bushels. Although this is a decline, it was higher than the average pre-report trade estimate of 205 million bushels.

“Drought conditions in Argentina and Brazil led to production reductions in these countries,” says Brees. “If dry conditions continue, then estimates are likely to be reduced further. The reduced South American production estimates contributed to a 4.07 mmt decline in 2008-2009 world soybean carryover to 49.87 mmt.”

Brees says USDA’s forecast soybean price range was increased by 25¢ and is now expected to range from $8.75 to $9.75/bu. “Although most expected a slightly larger reduction in U.S. soybean carryover, soybean carryover estimates were reduced and corn ending stocks did not increase as expected,” he says. “This suggests that the estimates were slightly bullish and most expected higher futures prices following the reports.

“Reductions in South American corn and soybean production continue as extended drought conditions occur in those countries. Drought conditions in South America are expected to reduce corn production, but lower world feed use and increases in European production estimates result in a slight increase to world corn ending stocks from 136.03 mmt to 135.66 mmt. Production estimates for Argentina may continue to decline in upcoming reports as many analysts believe additional production damage has occurred.”

Brees says the slumping economy, energy prices, dollar value and other outside factors will continue to affect corn, soybean and wheat prices by often moving prices opposite of what supply/demand fundamentals may suggest. “But market attention will continue to focus on South American corn and soybean crops in anticipation of whether further production cuts will occur,” he says. “The U.S. acreage mix of spring planted crops will also be anticipated and watched closely for early clues to 2009 production.”