The U.S. Department of Agriculture's August Crop Production report forecast smaller-than-expected U.S. corn and soybean crops for 2013. The corn crop forecast is at 13.763 billion bushels, 242 million bushels smaller than the average trade guess, and the soybean crop forecast sits at 3.255 billion bushels, 81 million bushels smaller than the average trade guess.

The forecast of corn area to be harvested for grain was unchanged from the June forecast of 89.135 million acres, but the average yield forecast of 154.4 bushels was 3.3 bushels lower than expected. Some of the larger yield forecast surprises were for Illinois and Indiana, where forecasts of 165 and 166 bushels, respectively, are well below the record yields anticipated based on generally favorable weather and high crop condition ratings, according to the University of Illinois. In contrast, the yield forecasts of 166 bushels for Minnesota and 163 bushels for Iowa are much higher than anticipated based on extensive planting delays and relatively low crop condition ratings.

The inventory of old crop corn on hand at the beginning of the 2013-2014 marketing year on September 1 is forecast at 719 million bushels, down 10 million bushels from July's projection. Corn exports have staged a small late-summer rally and will be marginally larger than earlier forecast for the 2012-2013 marketing year. For the upcoming marketing year, the USDA lowered the projection of feed and residual use by 50 million bushels, reflecting expectations of less "residual" use with a smaller crop forecast. The projection of exports was reduced by 25 million bushels, reflecting larger production and export forecasts for the Ukraine.

The projection of corn used for ethanol production was unchanged at 4.9 billion bushels, implying little growth in consumption of ethanol blends above 10 percent during the year ahead. Stocks at the end of the 2013-2014 marketing year are projected at 1.837 billion bushels, 122 million less than projected in July. The marketing year average farm price is projected in a range of $4.50 to $5.30, $0.10 higher than projected in July.

The estimate of area planted to soybeans was reduced by 550,000 acres from the June forecast, with most of the reduction coming in Kansas, Minnesota, North Carolina and South Dakota. The U.S average soybean yield is forecast at 42.6 bushels, about one bushel below the average trade guess. The yield forecast of 47 bushels for Illinois was surprisingly low while the forecast of 46 bushels for Iowa was larger than generally expected, according to the University of Illinois.

The forecast of the inventory of old crop soybeans at the beginning of the 2013-2014 marketing year on September 1 was unchanged from July's projection of 125 million bushels. However, the forecast of the domestic crush during the year ending in August was increased by 25 million bushels, the forecast of imports was increased by 10 million bushels, and the forecast of exports was reduced by 15 million bushels. With just over three weeks left in the 2012-2013 marketing year, it appears that exports will be slightly larger than the revised forecast.

For the upcoming marketing year, the forecast of the domestic soybean crush was reduced by 20 million bushels and the forecast of exports was reduced by 65 million bushels. The lower export forecast reflects anticipation of loss of market share to Argentina. Year-ending stocks of U.S. soybeans are projected at 220 million bushels, 75 million less than forecast in July. The marketing year average farm price is projected in a range of $10.35 to $12.35, $0.60 above July's projection.

For soybean oil, the forecast of consumption for biodiesel was increased by 200 million pounds, to a total of 5.7 billion pounds. That compares to expected consumption this year of only 4.6 billion pounds. The increase reflects the likely need to increase biodiesel production to meet the Renewable Fuels Standards for 2014, although the preliminary rules for 2014 have not yet been announced by the EPA. The forecast of domestic soybean oil consumption for other purposes was reduced by 200 million pounds.