Prepared by Richard A. Brock & Associates, Inc.

There were very few surprises in Friday's Crop report or in the USDA supply/demand revisions. Some of the highlights of the report include:

1. This year's corn crop was pegged at the low end of trade estimates at 9.268 billion bushels versus the August estimate of 9.276 and last year's crop at 9.293.

2. To offset the smaller than expected crop, the USDA lowered usage of corn by dropping exports 25 million bushels which resulted in an increase in estimated carry-over supplies to 864 million versus the previous estimate of 847 million.

3. World ending stocks of corn were increased slightly from 70.79 to 70.85 million metric tons. This, however, is a significant drop from last year's world ending stocks of 86.28 million metric tons.

4. The soybean production estimate was right on target at 2.746 billion bushels, which is a 15.3% increase over 1996.

5. This past year's carry-over supply of beans was dropped to 115 million metric tons and this current year's carry-over is now estimated at 285 versus a previous estimate of 305 million bushels.

6. World carry-over supplies of soybeans were dropped from 19.43 to 18.69 million metric tons. However, this compares to last year's carry-over supply of only 12.39 million metric tons. This will be one of the largest carry-over supply of soybeans in recent history.

7. Wheat supply and demand estimates changed very little. This year's carry-over was dropped from a previous estimate of 695 to 671 million bushels, which compares to last year's 444 and the previous year's 376 million bushels.

8. The cotton production estimate was increased to 18.42 million bales and last year's carry-over helped offset that by dropping from 4.1 to 3.82 million bales. The net effect was a slight decline in carry-over supplies for this coming year in cotton.

Of the key states in corn, very few changes took place. As most expected, Iowa's corn yield was left unchanged from the August estimate at 140 bushels per acre. While some observers had expected a decline in Illinois, reports we were getting from subscribers indicated there should be very little change. That is exactly what happened as the Illinois corn yield was left at 127 bushels, the same as the August estimate, but down sharply from last year's 136 bushels per acre. Indiana also came in as expected–lower than the August estimate by 5 bushels per acre.

The only other notable change is in Ohio. That's not because of the change since August, but because of a sharp increase from the disastrous yields in 1996 of only 111 bushels per acre. Missouri was also hit by dry weather during the key parts of the growing season, but nevertheless improved from the August crop report from 108 to 112, which compares to the 1996 yield of 134 bushels to the acre. Quietly in the background, Nebraska was left unchanged this year from the August report but is down 10 bushels per acre from 1996.

The Bottom Line: The corn report was a sleeper. The key numbers have not changed. This year's expected stocks-to-usage ratio is now at 9.8% versus last year's 10.7%. This means that corn prices nationwide this year should average slightly above the $2.50 mark and maybe as high as $2.65. With December futures trading at $2.74, there is still a potential upside of approximately another 20 cents per bushel if harvest problems materialize. Technically, the trend in corn is still up and a close above $2.80 would set the stage for a move to $3.10 basis December futures. Should that occur, however, it will be a selling opportunity–not a time to panic and become bullish.

This year's crop is pegged at an all time record high of 2.746 billion bushels–a 15.3% increase over 1996. This is due to a slight yield increase from 37.6 to 39.3, but more importantly to a sharp increase in planted acreage from 64.2 million acres to 70.9. As mentioned above, however, the major factor in soybeans is that worldwide carry-over supplies are increasing and South America has put a push on production. While total usage is increasing, it is not increasing as rapidly as production. This leaves the current estimated stocks-to-usage ratio for soybeans this year at 12.3% versus last year's 4.7%.

At this ratio for the stocks-to-usage, soybeans should average in the high $5.00 range or possibly at $6.00 or a little above. With November futures trading near the $6.50 mark, it is frankly hard to get bullish on beans from this level. They are certainly not grossly overpriced, but nevertheless, baring major crop problems, unless something changes dramatically in the fundamental picture, soybeans are trading in the upper half of their expected annual price range and could well be in the upper 1/3. Technically, unlike corn, soybeans are still in a sideways trading range, having yet to switch into an uptrend.

This is an interesting market in that there appears to be more divergence between bullish and bearish attitudes than is typical. While it is not uncommon to have a split among attitudes, the bulls now seem to be more bullish than ever and the bears more bearish than ever. Typically, what this means is that prices are trading about where they belong.

At this stage, we still feel very comfortable with our current positions. In corn, everyone is 40% sold in the cash market at some very profitable levels, hedgers have put considerable profits in the bank from previous hedges and are currently sitting with long December $2.70 puts on 30% of the crop. What would be ideal at this stage is for the corn market to break into new highs, turn the bulls extremely bullish and rally into the $3.00 to $3.10 zone. Should that occur, this would be an area where we would use scale-up selling for remaining new crop corn and to start pricing some 1998/99 crop corn. It is not an area where we want to be a panic buyer. For the near term, let's wait for the next technical signal before taking any Aggressive action.

Soybeans are really similar. We are 40% sold in the cash market and short November futures on only 20%. Rallies above $6.50 and specifically close to $6.75 will be viewed as selling opportunities. In the meantime, this is not a time for soybean meal or oil buyers to panic and chase this market. Expect very choppy trends over the next few weeks.

September 12, 1997 Richard A. Brock & Associates, Inc.

2050 W. Good Hope Road, Milwaukee, Wisconsin

Consensus National Futures and Financial On Line Index

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