Key corn supply numbers came in below pre-report estimates. More importantly, the report dispelled an expectation that was building in recent weeks that yields would be higher than earlier projected. Some analysts were pegging the yield as high as 127 bushels per acre, about 5 bushels higher than what USDA reported. The October yield was pegged at 122 bu/acre, which in itself implied a 70 million bushel reduction in output. However, USDA increased the number of planted acres and harvested acres (per FSA certified data), leaving output down just 21 million bushels from the September forecast. One of the biggest changes in the report was one which was already known. Carryover stocks are down 193 million bushels, reflecting the latest data from the quarterly grain stocks survey. USDA offset some of the reduction in available supply by lowering its estimate of US corn exports by 100 million bushels. Currently USDA projects US corn exports for 2012/13 at 1.150 billion bushels, 25.5% smaller than a year ago.

USDA did not change its estimated ethanol and feed demand from the September report. Feed use is still expected to be down 9% from the previous year while ethanol use is expected to be down 10%. It remains to be seen if current corn prices are enough to force these kinds of cutbacks in livestock and energy demand for corn. At this point, USDA projects reductions in the production of all three main meat proteins. Beef production for 2013 is currently pegged at 24.726 billion pounds, 3.7% lower than a year ago. US beef production for the period Q4 2012 - Q3 2013 (corresponding to the corn marketing year) is projected to be down 3.3% from the previous year. Pork production for all of 2013 is projected at 23.017 billion pounds. This is about 95 million pounds larger than what USDA projected in September but down 1.3% from a year ago. The upward revision came despite reports that producers may be aggressively reducing their breeding herds.

Indeed, for the period Q4 2012—Q3 2013, USDA pork production is down just 0.2% from the previous year. Broiler production is expected to decline further, down 0.8% from a year ago following a 1.3% reduction in 2012. Still, looking at output projections for Q4 2012 - Q3 2013 USDA expects broiler production to decline 1.3%. Those that hold a more bullish view of the corn market point to these kinds of reductions in meat production and conclude that feed demand may not decline as much as what the USDA balance sheet indicates. And with current corn ending stocks at minimum pipeline levels, something will have to give. Ethanol could decline further but that will likely require lower crude oil prices. There is talk of higher corn imports, which could end up hitting 100 million bushels but still too small to make a dent. In the end, livestock producers could be squeezed further in order to force bigger production cutbacks.