On Nov. 9, the USDA released its monthly supply/demand grain report. The report was another shocker, this time to the soybean market as the USDA slashed soybean production by the largest amount in history for the month of November.

The forecast corn production at 12.5 billion bushels, down 1 percent from the October forecast and down 4 percent from last year’s record production of 13.1 billion bushels.

As of Nov. 1, yields are expected to average 154.3 bushels per acre, down 1.5 bushels from the previous month and 10.4 bushels below last year’s record of 164.7 bushels. This is still the third largest U.S. corn crop in history.

Forecasted yields decreased from last month throughout much of the Corn Belt, with the biggest decline forecasted in Missouri, down seven bushels per acre. The expected yield in South Dakota declined five bushels from last month while the Nebraska yield dropped four bushels per acre.

Record high yields are forecast in California, Georgia, Michigan, Minnesota, New York, North Dakota and Wisconsin.

In four of the five years with corn yield declines in September, October and November, there were additional yield losses noted from the November report to the final.

The largest decline occurred in 2006 at 2.0 bushels per acre and the smallest November to January decline was 0.2 bpa in 1997.

The USDA forecast 2010/11 U.S. corn ending stocks at less than half of the 2009/10 stock and are poised for additional shrinkage in upcoming reports. Stocks of 827 million bushels is the tightest since 1983/84 and the stocks/use ratio of 6.6 percent is the second tightest since the 1995/96 ratio of 5 percent.

This leaves little to no margin for further corn production cuts or higher U.S. demand.

Soybean production is forecast at a record high 3.38 billion bushels, down 1 percent from the October forecast, but up slightly from last year. Based on Nov. 1 conditions, yields are expected to average 43.9 bushels per acre, down a half bushel from last month and down 0.1 bushel from last year’s record high yield.

Compared with last month, yields are forecast lower or unchanged in all major-producing states except Delaware, Michigan, Mississippi, North Carolina, Texas, and Wisconsin.

The largest decreases in yield from last month are expected in Kansas, Nebraska, New Jersey and South Dakota, down 2 bushels each. If realized, the forecasted yields in Illinois, Louisiana, New York and Wisconsin will be record highs and the forecasted yield in Michigan and North Dakota will tie the previous record high.

Area for harvest in the United States is forecast at 76.8 million acres, unchanged from the previous forecast but up 1 percent from 2009. In years with soybean yield declines in September, October and November, there were also additional yield losses noted from the November report to the final.

The pattern of November to final soybean yield declines averaged 0.2 to 0.4 bpa, while the five-year average November to final report gains of 0.3 to 0.5 bpa.

The soybean stocks-to-usage ratio of 6 percent is the second tightest since 2008/09 and 2009/10 ratios of 4.5 percnet. Soybean stocks of only 185 mb does not leave any room for error for either South American crop troubles or higher Chinese soybean imports.

Hoops analysis: This was the third consecutive shocking monthly supply/demand report from the USDA. January’s final 2010 crop year production report will no doubt hold some major surprises, as well.

Basis levels should now begin to tighten as U.S. farmer selling will no doubt dry up as producers will want to see what the January report says before they liquidate any more of the 2010 inventory.

Cash flow needs should be a non factor with strong farmer selling this spring translating into cash sales this fall. Prices should be well supported on breaks until acreage battle is solved this spring.

Corn analysis

Corn closed the week $.56 3/4 lower. Corn failed at old resistance and closed sharply lower for the week. There were no private export sales to report.

Producers in the eastern and western Corn Belt are wrapping up fall field work and any late-harvest activity. Basis levels should now improve as farmers will be tight-fisted with their remaining inventory until after the January crop report.

Soybean analysis

Soybeans closed the week $.15 lower from last week. Last week, private exporters reported sales of 440,000 metric tons of soybeans to China, 112,000 MT of soybeans to Mexico and 30,000 MT bean oil to China.

With harvest virtually completed, basis levels will likely improve as the cash markets will need to bid for a steady supply of product.

Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.