The 2007 small grains report and the latest quarterly stocks report provided some surprises for wheat and corn. But building concerns about tighter world wheat supplies and dryness in northern Brazilian soybean areas delaying early seedings have been important price factor support values despite this fall's harvest activity picking up.

Instead of a slight rise, the USDA's latest total U.S. wheat projection dropped 47 million to 2.067 billion bu. Hard red output rose 16 million on this report, but soft red (-4 to 358 million) and this year's spring varieties (hard red -28 to 479 million and durum -5 to 72 million) declined because of late season heat cutting yields in the Northern Plains (2.3 bu. to 37 bu. and 1.6 bu. to 33.0 bu.). However, the big changes on this report were the sharp cut in winter wheat harvested acres of 1.24 million (mostly in hard red states in the Plains) and continued shift of more seeding of hard red winter varieties vs. white in the Pacific Northwest-which along with extreme heat during flowering, cut white's output by 33 million bu. on this update. The USDA also cut the U.S. barley and oat crops by 12 million and 6 million to 211 million and 92 million bu. respectively, because of Northern Plains' heat.

These smaller wheat supplies also were reflected in the USDA's quarterly stock report, with a 1.717 billion bu. September level-down 26 million bu. from 2006. Despite high prices, last summer's wet plains harvest and central U.S. freeze cutting test weight prompted many producers to move these supplies at harvest and kept this year's feed demand at 170 million. Combine last summer's strong overseas demand of 315 million bu. (the highest shipments since 1999) and this year's early strong domestic demand, the USDA's October 12 U.S. ending stocks could drop to 265 million from 362 million bu. last month. Ongoing concerns that Australia's crop could be 10 -13 mmt (because of limited moisture for the second year in a row) vs. the last month's 21 mmt crop projection suggests a significant 5-7 mmt tightening of the world's wheat stocks could be forthcoming on the USDA's October 12 update.

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