The USDA's March 1 Grain Stocks report revealed a surprisingly small inventory of corn, said a University of Illinois Extension agricultural economist.

"The smaller-than-expected inventory implies that consumption during the second quarter of the 2010-11 marketing year was larger than expected. It appears that consumption is progressing at a rate that cannot be sustained by available supplies," said Darrel Good.

At 6.523 billion bushels, the estimate of March 1 inventories was 1.171 billion bushels smaller than stocks of a year earlier and 165 to 170 million bushels smaller than the average trade guess.

The ease of originating grain from producers at generally normal basis levels had led some to believe that March 1 stocks would be much larger. The report revealed that on-farm stocks were 1.164 billion bushels smaller than those of a year earlier. Off-farm stocks were only 7 million bushels smaller.

"Producers have moved larger quantities of corn to market than they did last year in response to higher prices, not a stronger basis. It should be pointed out that the estimate of off-farm stocks is based on a near census of commercial facilities while the on-farm stocks estimate reflects a sample of producers and is therefore subject to sampling error," Good said.

Where did the corn go? Total consumption of corn during the second quarter of the year totaled 3.538 billion bushels, 328 million more than was consumed a year ago. The USDA has not yet released estimates of use by category during the second quarter of the year.

Based on preliminary calculations, exports during the quarter were 18 million bushels less than during the second quarter last year. Processing uses were up 167 million bushels, and by calculation, feed and residual use was up 179 million bushels.

"It appears that feed and residual use of corn during the first half of the marketing year totaled 3.606 billion bushels, nearly 7 percent more than during the first half of the previous year. For the year, the USDA has projected a year-over-year increase of only 1.2 percent," Good said.

The amount of corn available for consumption during the last half of the year depends on the magnitude of the minimum level of year-ending stocks. The USDA currently forecasts those stocks at 675 million bushels, or 5 percent of expected consumption, he added.

"Historically, stocks have not been lower than 5 percent of use. If stocks can be reduced to 4.5 percent of use, then the minimum carryover level is 610 million. A 4 percent stocks-to-use ratio would allow year-ending stocks to be reduced to 550 million bushels.

"It appears that use during the last half of the year will be limited to about 5.95 billion bushels. That is, following an 8 percent year-over-year increase in the first half of the year, use during the last half of the year needs to be about 1 percent less than use of a year earlier," Good added.