Latest US Department of Agriculture forecasts on grain supplies for 2011-12 are more negative than last month’s assessments – although this came as no surprise to analysts given recent crop progress reports showing deteriorating crop conditions due to drought.

The latest USDA corn yield estimate is now pegged at 148.1 bushels per acre, almost 5 bushels/ac lower than the August estimate and 10 bushels/ac below the July estimate.

The reduction in yield estimates removed more than 400 million bushels from an already very tight supply/demand balance sheet in US corn supply.

Analyst Steve Meyer from the Chicago Mercantile Exchange said in yesterday’s Daily Livestock Report that the lower yield assessments were reverberating throughout the US industry, as this is the first time since 1995-96 that the annual corn yield was expected to be lower than the 10-year average.

The most recent USDA report suggests the biggest loser into next year from the shortfall will be the US livestock and poultry industries, with feed use expected to decline some 300 million bushels from the previous year and 200 million bushels lower than the August estimate.

Part of the reduction in feed use reflects higher use of dried distillers grains (DDG) from the ethanol industry, use in cattle feeding and to a lesser extent, pork and poultry. However, the reduction in feed use reflects lower animal units expected to come to market in the next 12 months.

“Forget about expanding the herds and boosting supplies to alleviate some of the price spikes,” Mr Meyer said. “The latest USDA report indicates that meat protein price inflation will likely be the theme again next year.”

The USDA reduction forecast also accounts for a 100 million bushel reduction in ethanol use.

There is some argument that ethanol use could be lower should the US Congress phase out ethanol subsidies and supports. However ethanol demand would depend greatly on what happens with crude oil prices over the next six months.