The USDA recognizes that producer responses to its Agricultural Yield Survey, which is one component of the monthly yield forecast, tend to be conservative (biased down), particularly under drought conditions.

The interpretation phase of the USDA's yield-forecasting process recognizes this tendency and factors it into the final deliberations of the yield forecast.

This methodology suggests the September corn yield forecast may have captured a portion of the yields that exceed producer expectations.

"Another complicating factor for anticipating the October corn production forecast is the uncertainty about the magnitude of harvested acreage. Planted acreage data released by the USDA's Farm Service Agency (FSA) reflects a larger difference between FSA certified acreage and the survey-based planted acreage estimate of the National Agricultural Statistics Service (NASS) than was the case in 2009 and 2010," Good said.

This larger difference, along with the possibility that more than the normal amount of acreage was harvested for silage or abandoned, suggests that the NASS forecast of acreage harvested for grain will be reduced in October.

Although considerable uncertainty persists on the issue of corn supply, the market seems to be more focused on the demand side of the balance sheet.

"The perception is that even with a slightly smaller crop forecast, prices are high enough to limit consumption to the available supply due to a downward shift in the demand for corn," he said.

Factors that have contributed to or may contribute to this shift include the availability of lower-priced wheat for the livestock sector, corn export competition, the end of the ethanol blenders' tax credit scheduled for the end of the year, and the general economic weakness that may reduce the overall demand for agricultural commodities.

The October corn production forecast along with the estimate of Sept. 1 inventories of old-crop corn will solidify supply estimates and quantify the magnitude of rationing required by the corn market. After that, the pace of consumption will be monitored to determine if the necessary reduction in consumption is occurring.

Some evidence that consumption is progressing too rapidly may be required to change the recent trend in prices. Weekly export data, which currently show a slow pace of shipments but a reasonable pace of new sales, provide the most visible information.

"Weekly ethanol production data provide the most frequent information on the pace of domestic consumption. Ethanol production in the first week of the marketing year, for example, was about 1 percent larger than in the same week last year," he noted.

The pace of domestic feed use is the least transparent, he said.

"USDA reports of livestock and poultry inventories will provide some basis for judging overall feed demand. The magnitude of feed and residual use of corn, however, will only be revealed with the quarterly Grain Stocks reports."