Corn prices have declined sharply so far in September.

After reaching a high of $7.79 on Aug. 29, December 2011 corn futures traded to $6.76 early in the trading session on Sept. 19, said University of Illinois agricultural economist Darrel Good.

"The lower prices have occurred even as USDA lowered the 2011 production forecast by more than 400 million bushels, suggesting that consumption during the 2011-12 marketing year will be restricted and that year-ending stocks will be minimal," he noted.

The price weakness reportedly reflects two fundamental factors. First, early corn harvest results in some Midwestern locations have uncovered "better than expected" yields. These results suggest the USDA may not reduce the 2011 yield forecast below the current forecast of 148.1 bushels or perhaps even increase the yield forecast in October or November.

"Expectations of an unchanged or higher yield forecast along with expectations of Sept. 1, 2011, inventories of old-crop corn larger than the current USDA forecast of 920 million bushels implies that corn consumption will have to be reduced less than currently forecast," he said.

The second factor is the generally held view that corn demand has weakened. Weaker demand implies that prices will not have to be as high as forecast in order to reduce consumption.

"There is certainly precedent for a larger yield forecast in October following a lower yield forecast in September. From 1975 through 2010 (36 years), the USDA's September forecast of the U.S. average corn yield was below the August forecast in 18 years, as it was this year," Good added.

According to Good, the decline ranged from 0.1 bushels to 14.8 bushels (1983). Excluding 1983, the largest decline was 4.5 bushels (3.6 percent) in 1995. The largest percentage decline, other than in 1983, was the 4.5 percent reduction in 1976.

"The August to September reduction this year was 4.9 bushels or 3.2 percent. Of the 18 years when the September yield forecast was below the August forecast, the October forecast was above the September forecast in seven years. Those seven years were between 1989 and 2008. In four of those seven years, the January yield estimate was above the October forecast," he said.

The difficulty in evaluating observations that corn yields exceed expectations is that the source of expectations is not known.