CHICAGO, Ill. — The new USDA crop report is good news for farmers, with production estimates much lower than expected, causing a shift from a supply-driven market to a demand-driven market, ag economists reported last week.

“This report lifts a cloud hanging over the market that yields were above trade expectations. This creates a shift to a demand-oriented structure,” said James Bower, owner and president of Bower Trading, Inc., during a press briefing hosted by the Chicago Board of Trade.

The USDA crop production estimate for soybeans is 2.967 billion bushels, compared to 2.856 billion last month and 3.124 billion last year. The corn production estimate is 10.857 billion bushels, up from 10.639 billion last month and down from 11.807 billion last year.

The 2005-2006 estimate for supply/demand is 260 billion bushels of soybeans and 2.220 billion bushels of corn.

“The final bean number could inch higher, and corn could inch higher. These are surprisingly good yields considering the stressful weather, particularly in Illinois,” said Brian Basting, commodity research analyst for Advance Trading, Inc.

The market depends on how aggressively the Chinese are buying US grain, Basting said.

“The Chinese demand is pretty darn exciting for U.S. soybean producers,” Basting said.

Bower added that the Chinese are expanding their dairy herd by 10-20 percent annually, building a “bigger demand base than most of the world realizes.”

In addition, the lower cost of corn will attract more buyers, Basting said.

“Two-dollar corn will stimulate end-user interest,” Basting said.

He characterized corn as “choppy,” wheat as “supportive,” and beans as “volatile.”

Bower said Argentina and Brazil are the countries to watch.

“Feed is at record levels for livestock,” Bower said.

At the same time, he noted a 3-4 percent reduction in Brazilian acreage due to transportation costs. Fertilizer applications were down 21 percent last month.

“Fuel prices have curtailed expansion in the north- and west-central parts of the country,” Bower said.

Basting attributed Brazil’s production loss to rust and drought conditions in the last few years. However, Argentina’s growth may offset some of the decrease in Brazil, he said.

“Brazil is still far and away the most important South American country to watch,” Basting said.

Basting added that the biodiesal impact may grow soybean demand, but not as quickly as ethanol is boosting corn.

Storage and LDP

“Storage is at a premium due to record crops last year,” Basting said. “The challenges facing the industry are storage and logistics. I believe we can meet the challenge in the next 30-60 days; we are in good shape. There will be a shift to a demand market.”

Bower advised farmers to lock in their LDP price, calling it a “huge source of revenue.” He expects the LDP payments to possibly dwindle, so “protect, protect, protect your LDP payments.”

To listen to the press briefing, go to www.cbot.com