Recent price behavior suggests the market is expecting a smaller crop than the current USDA forecast of 3.056 billion bushels, he said.

"Some of the needed reduction in corn and soybean consumption during the 2011-12 marketing year may occur as a result of weaker demand.

“There are multiple sources of a potentially weaker demand scenario for U.S. corn and soybean crops.

“These include the generally weak economic environment and continued high unemployment rate that could weaken demand for meat and livestock products; the current abundance of competitively priced wheat that could be substituted for corn and soybean meal in livestock feed rations; lower energy prices that would weaken the demand for biofuels; and larger South American crops in response to the current high prices," he said.

Depending on the size of the 2011 harvest and the size of the old crop inventories at the beginning of the 2011-12 marketing year, weaker demand may not be sufficient to ration supplies.

The market is currently reflecting expectations that higher corn and soybean prices will also be required to limit consumption, he said.

"The market response to prospects for smaller supplies suggests that a 'short crop' price pattern for corn and soybeans may unfold during the year ahead. Such a pattern would point to a price peak very early in the marketing year and then declining prices as the year progresses as evidence of slowing consumption unfolded," Good added.

According to Good, elements for a decline in the rate of consumption may already be in place. "The number of cattle in feedlots, for example, is currently high due to drought conditions in the Southwest.

“Feedlot numbers will likely decline over the coming year. The profitability of poultry, milk and hog production is being reduced by current price relationships.

“The ethanol blender tax credit is due to expire at the end of 2011 so that ethanol production above the mandated level will require favorable blending margins, he added.

"Still, there is a lot of uncertainty about demand for U.S. corn and soybeans. These uncertainties include corn demand from China and the size of the upcoming South American crops," he said.

“Although a lot of unknowns persist, it now appears that smaller supplies will push corn and soybean prices even higher in the short-run, with prices peaking early in the marketing year and moving erratically lower into the winter, Good said.