The corn market was surprised by the USDA's final 2011 corn production estimate and the estimate of Dec. 1, 2011 corn stocks.

The March 2012 futures price declined by 52 cents per bushel in the two sessions following the release of the reports, said Darrel Good, a University of Illinois agricultural economist.

At 9.642 billion bushels, Dec. 1 corn stocks were 425 million bushels smaller than those of a year ago and the smallest in five years, but they were about 240 million bushels larger than the average of the reported trade guesses, he said.

"Those guesses were in an extremely wide range of 500 million bushels. Three of the 15 analyst guesses reported by Dow Jones were 9.55 billion bushels or larger, so not everyone was surprised by the USDA estimate," Good said.

Part of the surprise in the magnitude of Dec. 1 stocks came as a result of the average expectation of a smaller 2011 crop estimate. With the absence of any supporting evidence, it is not clear why, on average, analysts expected a 30-million-bushel reduction in the estimated size of the crop.

"The USDA estimate was a very modest 48 million bushels (0.4 percent) larger than the November 2011 forecast. The 78-million-bushel difference between expected and actual production accounts for about one-third of the surprise in the stocks estimate.

“The remainder of the surprise is the result of incorrect expectations about the level of feed and residual use of corn during the first quarter of the 2011-12 marketing year," Good said.

The market anticipated a high level of use to be revealed, perhaps partly to correct what was perceived as an underestimate of feed and residual use in the previous quarter.

The surprisingly large estimate of Sept. 1, 2011, stocks implied a very low level of feed and residual use during the final quarter of the 2010-11 marketing year and for the entire marketing year.

"Some believed the low, and incorrect, estimate of feed and residual use last year had resulted in an unrealistically low forecast of use for the current year. It was thought that the Dec. 1 stocks estimate would 'correct' the past errors and show a high level of use during the September-December quarter, resulting in a larger projection of use for the year. That did not happen," he said.

Instead, implied use during the quarter was consistent with the USDA forecast of 4.6 billion bushels so the forecast was not changed. Calculated feed and residual use of 1.838 billion bushels during the quarter represents 40 percent of the projected total for the year.

"The percentage of total use during the first quarter last year was an unusually large 43.2 percent. In the previous 4 years, use during the first quarter averaged 39.3 percent of the marketing year total, in a range of 38.2 to 40.7 percent.”