The 2011-12 corn and soybean marketing years will be characterized by the need to reduce consumption of both crops, but the magnitude of those needed reductions are not yet known and the prices needed to make those cuts will depend on the strength of underlying demand, said University of Illinois agricultural economist Darrel Good.

"Based on the most recent USDA projections, and the assumption that year-ending stocks need to be maintained at or above 5 percent of consumption, corn use would need to be reduced by only about 30 million bushels, or 0.2 percent, during the year ahead.

“Soybean consumption would need to be reduced by 122 million bushels, or 3.7 percent," Good said.

The actual reductions needed will depend on the final consumption estimates for the 2010-11 marketing year, the magnitude of old crop inventories on Sept. 1, and the size of the 2011 harvest.

"Unfolding evidence suggests that the 2011 U.S. corn crop could be smaller than the initial projection of 12.914 billion bushels.

“Preliminary certified acreage data released by USDA's Farm Service Agency (FSA) suggests that planted acreage fell short of the NASS estimate of 92.282 million acres.

“In addition, weather conditions since late July, in conjunction with early harvest results and yield survey results, suggest the U.S. average yield may be below the initial USDA forecast of 153 bushels,” he said.

The USDA will release new production forecasts on Sept. 12 and Oct. 12. The final FSA acreage data, along with any additional information from the monthly NASS surveys, will be incorporated in the October production forecast.

History also suggests that the October yield forecast will be reasonably close to the final estimate.

"The corn market is clearly expecting a substantial reduction in the forecast of 2011-12 marketing-year corn supplies," Good noted.

For soybeans, there is less as well as conflicting evidence about potential crop size.

The USDA's initial forecast of the U.S. average yield of 41.4 bushels was surprisingly small. At the same time, August weather has not been uniformly favorable for soybean crop development, and FSA acreage data suggests that planted acreage may have been even less than the 74.958 million estimated by NASS.