If USDA projections are correct, then farmers in the U.S. will harvest record-large corn and soybean crops this fall.

Last week, USDA forecasted corn production at 13.4 billion bu. and soybean production at 3.43 billion bu., both 2% more than the record set in 2009. Based on conditions as of Aug. 1, corn yields are expected to average a record-high 165 bu./acre, up 0.3 bu./acre from the previous record set last year. Soybean yields are expected to equal last year’s record of 44 bu./acre.

On the other side of the equation, last week’s "World Agricultural Supply and Demand Estimates" (WASDE) raised projections for corn use in 2010-11 by 30 million bu., reflecting higher expected corn use for sweeteners and starch. Exports were projected 100 million bu. higher as tighter foreign supplies of wheat and coarse grains raise prospects for U.S. corn shipments. Despite higher production, ending stocks are projected 61 million bu. lower at 1.3 billion, the lowest in four years. The season-average projected farm price was raised 5¢ on each end of the range to $3.50 to $4.10/bu. Similar price increases are projected for the other feed grains.

There’s also wonderment about whether the record yield can be achieved. University of Illinois (IU) models, for instance, peg this year’s yield at 158.1 bu./acre, significantly less than USDA's projection, which is significantly less than what many private analysis firms projected ahead of the report.

“Our forecast of the 2010 average corn yield is based on crop condition ratings as of Aug. 1, weather through July, and equal chances that August weather will replicate the August weather of each of the past 50 years,” explains Darrel Good, IU ag economist. “The result is a forecast of 158.1 bu./acre. Unlike last year when the crop yielded better than it looked because of very favorable summer weather (cool and wet), our analysis suggests the 2010 yield will be lower than implied by crop condition ratings alone. The expected shortfall is due to excessive June precipitation and above-average summer temperature. For soybeans, our modeling points to a 2010 U.S. average yield of 43.7 bu., which is very near the record 44 bu. of last year.”

Although the IU yield models performed well in 2009, Good cautions that the models don’t capture all the factors that influence yield and that actual August weather is yet to be determined.

“The result is that the models have relatively large forecast errors so that confidence in the specific forecasts is limited,” Good says. “Still, the results suggest that the final 2010 yield estimate for corn could be below current market expectations.”

Good also points out, “Domestically, ethanol production is expected to continue to expand. At a minimum, growth will be in line with the mandated levels of bio-fuels production. Growth beyond that will depend on the fate of the blender’s tax credit that expires at the end of 2010 and on the Environmental Protection Agency's decision about increasing the blend rate.”

Good says export demand for U.S. corn may be enhanced by a much smaller wheat crop in the rest of world, led by declines in Canada, Russia and Kazakhstan.

“While current stocks of wheat are large, smaller crops this year and the resulting higher prices of wheat may result in an increase in demand for corn. Exports may get a further boost if China needs to import more corn,” Good says.