The USDA released its Annual Crop Production, Grain Stocks and World Agricultural Supply and Demand Estimate reports on Jan. 11, showing a continued trend toward tighter grain supplies.

The agency actually raised its projection of U.S. wheat ending stocks for 2007-2008 by 12 million bushels due to lower domestic use. Nevertheless, at 292 million bushels, this year's ending stocks are forecast to be the lowest in 60 years. USDA projects a season-average farm price of $6.45 to $6.85 per bushel, 25 cents higher than last month’s forecast on each end of the range, based largely on lower-than-expected plantings of hard red winter wheat. The projected range is well above the 1995-1996 record of $4.55 per bushel.

For corn, the agency reduced its projected ending stocks by more than 350 million bushels from its December 2007 forecast. Utah StateUniversity agricultural economist Dillon Feuz says the change was primarily the result of a 100-million-bushel reduction in production estimates and an increase in feeding of 300 million bushels. Feuz says the futures market responded with prices jumping 30 cents per bushel in two trading days, and now most corn contracts are trading over $5 per bushel. USDA projects a season-average farm price for corn at $3.70 to $4.30 per bushel, up 35 cents on both ends of the range from last month.

These prices will continue to pressure calf and feeder-cattle values. Feuz notes that feedlot cost of gain in October, when corn was priced around $3 per bushel, was around $65 per hundredweight. With $5 corn, the cost of gain rises close to $85 per hundredweight. With fed-cattle prices now close to $90 per hundredweight, he says, there is not much room for higher feeder-cattle prices. The breakeven purchase price for eight-weight steers would be about $93 per hundredweight and only $96 for six-weight steers. For the full Annual Crop Production report, follow this link.