The report indicated that dry weather in August is taking a toll on production, just as lower prices kicked up demand for corn and soybeans. As a result, the harvests might not be large enough to replenish corn and soybean stocks going into next year.
That is certain to put pressure on food industry manufacturers and consumers, who are contending with higher prices for everything from milk to steak.
With demand for corn and soybeans up next year, farmers will have to choose which crop should cover the majority of their fields. Much of that choice will boil down to which crop generates the highest profit, which will be decided largely by prices in the futures market.
"We're going to have a huge battle for acres next year," said David Hightower, editor of the commodities newsletter The Hightower Report.
December corn futures at the Chicago Board of Trade rose $0.30, to $5.63 a bushel, in Friday trading. And November soybeans were up $0.26, to $12.02 a bushel.
What makes the showdown between corn and soybeans unique is that the harvests will remain strong this year. The corn crop will be the second largest in American history after last year, and the soybean crop is the fourth largest on record.
The corn harvest should be 12.07 billion bushels from 79.29 million acres, according to the monthly report. While that harvest should be able to meet immediate needs, it leaves ending corn stocks at 1 billion bushels, about 550 million below what they were at the start of this year.
One reason why ending corn stocks have fallen is futures prices. When corn futures sold for $7.50 a bushel earlier this year at the Chicago Board of Trade, there was less demand from buyers.
However, as corn drifted to $5.20 a bushel, demand returned and available supplies for 2009 have dwindled as a result.
That could mean planting an additional 5 million acres next year to satisfy the need for corn for animal feed, ethanol and exports.
"If we're going to entice another 5 million acres into production, it's going to require an increase in prices," said Greg Wagner, a senior analyst for Ag Resource.
However, corn has become increasingly expensive to plant, due in part to fertilizer costs, causing farmers to have better margins with soybeans. In addition, because of the late planting season, the soybean harvest this year could be disappointing.
The Agriculture Department predicts a harvest of 2.93 billion bushels. It lowered the estimated yield to 40 bushels per acre, down half a bushel. Analysts expect that number to fall further, which would increase prices.
"The pod counts are substantially below where they were last year," Wagner said. "I think you're going to see a sub-40-bushel yield."
All of this adds to the economic strain faced by the livestock and meat-production industries. A second straight year of high grain costs for those companies "will be challenging to overcome with pricing," said Credit Suisse analyst Robert Moskow.
From the September 15, 2008, Prepared Foods e-Flash
