Corn and wheat prices fell Aug. 12 after the USDA went against expectations and predicted supplies would increase, market watchers said.
The industry anticipated fewer corn and wheat acres after flood prevented spring plantings and weather-related production problems in the Midwest, said Randy Fortenbery, Washington State University small grains economist.
"The little bit of a rally people were looking for due to a poor corn crop and maybe a little less spring wheat, they got the exact opposite," he said.
Instead, the USDA estimated corn production at 13.9 billion bushels, up 26 million bushels from the July projection. The decline in harvested acres is offset by an increase in yields.
The estimate for U.S. wheat production was raised 59 million bushels to 1.98 billion bushels because of increased winter and spring wheat production.
Corn prices dropped the limit Monday, down 25 cents per bushel.
Wheat dropped 25 to 28 cents per bushel, back to early May prices, Fortenbery said.
Soft white wheat ranged from $5.68 to $5.80 per bushel on the Portland market. Corn was $4.68 to $4.70 per bushel.
"All of this is based on fuzzy math," said Dan Steiner, Morrow County Grain Growers grain merchant in Boardman, Ore.
USDA didn't distinguish between corn planted on time and corn planted as a cover crop after prevented planting to receive market facilitation program (MFP) crop insurance payments, Steiner said.
"Even if they don't produce anything, right now USDA is counting them as fully planted, on time, 169-bushel-an-acre across the board average," Steiner said. "Even the stuff that was planted on time doesn't look as good because we had such a cool, wet spring."
The USDA Farm Service Agency indicated 11 million acres were planted after prevented planting dates and not likely to produce anything, Steiner said. That's the equivalent of the entire U.S. wheat crop, he said.
"It's horribly inflated," Steiner said. "That's 1.8 billion bushels of corn. The U.S. wheat crop this year is expected to be 1.9 billion bushels. It's a huge, huge deal ... it's an epically ugly day."
Omaha, Neb., market analyst Darin Newsom protested receiving the USDA reports at all when the long-term fundamentals haven't changed.
"We shouldn't have these monthly guesses," he said. "These numbers shouldn't be released. We should get one set of numbers when we know final planted acres, final harvested acres and final yield and production. That's the only report on production that should be released. Everything else is nonsense."
Newsom said he'd talked to several customers the same day the report was released.
"The general consensus seems to be if it averages 69 bushels in some of these areas, it will be a miracle, not to mention 169 bushels," Newsom said.
Newsom believes markets will rally.
"I think the reality that the corn isn't there will sink in over time," he said.
Soft white wheat ending stocks, about 88 million bushels, increased 1 million bushels from July's report, but are 21 million bushels below the same time last year.
U.S. wheat is currently cheaper than wheat from Russia, a key competitor, Steiner said. U.S. wheat still has a freight disadvantage into Europe, $35 per metric ton compared to Russia's $17 per metric ton.
Wheat exports were slightly improved from USDA reports in May and June. But Fortenbery cautioned against reading too much into that. At this time of year in recent reports, USDA is typically overly optimistic about wheat exports, he said.