Aug.31—The corn market exhibited a sell-off in corn, falling 14 cents the day the USDA released the projected 2006-'07 corn yield. The surprising figure was pegged at 152.2 bushels per acre, up from 149 in the previous estimate. This allowed the market to see a sizeable liquidation of long positions. As a result of the yield prognosis, total corn production was placed at 10.976 billion bushels. With an estimated 2005-'06 carry-in of 2.062 billion bushels, total supply for 2006-'07 would be 13.047 billion bushels. Feed and residual increased from the July estimate and last year's estimate. Ethanol demand remained unchange, consuming an estimated 2.150 billion bushels, an increase of 550 million bushels from a year ago. This is 16 percent of the total U.S. supply. Exports remained unchanged from the previous estimate but increased 50 million bushels from a year ago. Ultimately, total demand is expected to be 1.232 billion bushels versus 2.062 billion bushels a year ago. This is a 10.4 percent carryout-to-use ratio versus a carryout-to-use ratio of 18.4 percent in the 2005-'06 marketing year. The last time the carryout-to-use ratio was this low was in 2003-'04 and 1995-'96 at 9.36 percent and 5 percent, respectively.

The global scene is observing the lowest carryout since 1983. World carryout is 92.88 million tons versus 127.04 million tons a year ago and 130.53 million tons in 2004-'05. This indicates that total world demand continues to increase. China, for example, continues to see a steady increase in corn usage. It is projected that China will utilize 141 million tons of corn versus 137 million tons a year ago and 131 million tons the year prior. This landscape could change if China encourages ethanol production and consumes corn as the major feedstock.

Ethanol is the driving force for U.S. corn demand, and this figure will continue to increase as the ethanol industry expands at a rapid pace. Corn values will become even more volatile in the upcoming marketing year as exhibited this year if any assumed production disruptions occur. The question leading into next spring is, "How many corn acres can the market buy?" New crop corn futures should stay supported in the low $2.40s to $2.50 with some deviation.