USDA issued its August crop report and World Board supply and demand estimates on August 10. This crop report is USDA’s initial NASS look at row crop yield prospects through survey and objective measurement. The relatively early stage of 2007-08 crop development assures that subsequent estimates in September and beyond will add to accuracy as important crop filling weather lies ahead into October.U.S. oilseed production for 2007-08 is projected at 80.2 million tonnes, down fractionally from last month as lower cottonseed production is nearly offset by higher peanut production. Soybean yields are forecast at 41.5 bushels per acre, 1.2 bushels below last year. U.S. soybean production is forecast by USDA to be 71.6 million tonnes, 15.3 million tonnes below last year’s crop. Soybean stocks are projected at 5.99 million tonnes.

Global oilseed production for 2007-08 is projected at 391.3 million tonnes, down 13.7 million tonnes from 2006-07. USDA also noted that soybean production for China is projected at 15.2 million tonnes, due to dry weather in the northeastern producing area

USDA also made changes in the 2006-07 crop estimates. These changes include a higher crush, reflecting stronger-than-expected domestic soybean meal disappearance and exports. With higher use, carryover for 2006-07 is now estimated to be 15.6 million tonnes.

Soyoil used in biodiesel during June dropped to 115,000 tonnes from May consumption of 123,000 tonnes that was revised higher by 12,700 tonnes. Poor biodiesel margins are limiting production to less than 50 percent of capacity that now tops 1 billion gallons. There is at least that much more capacity in various stages of construction. With soyoil stocks estimated at a record 1.54 million tonnes at the end of June, the U.S. could afford to allow more biodiesel production to occur in the near term. Instead, soybean oil prices have mirrored the petroleum market in order to narrow biodiesel margins and thereby rein in the expansion in biodiesel production.

The best market for biodiesel has been the export market, namely to the EU. Biodiesel exports were more than 50 percent of April and May biodiesel production. Soyoil prices have not been so high as to discourage soyoil exports that are now forecast to reach 805,000 tonnes in 2006-07, the largest since 2002-03.

On the business side of biofuels, after two years of waiting, Soy Energy L-L-C has finally broken ground on its new 30 million gallons a year biodiesel plant near Marcus, Iowa. The $58 million plant is scheduled to start production in early 2008, with over 900 local investors. It will create at least 24 new jobs. Soy Energy also plans to add a crushing plant in phase two.

TUSDA Secretary Mike Johanns earlier this year said he needed “fresh information” to make a decision on whether he would allow eligible Conservation Reserve Program (CRP) contract holders the opportunity to exit the program early without penalty – the so-called opt-out decision. Last week’s USDA Crop Production report, along with the prior June Acreage estimates, are some of the “fresh information” Johanns mentioned for the CRP decision. However, Johanns may still wait until after the September Crop Production report before making a final CRP decision. Many analysts believe it is Johanns’ inclination to not offer an early out without penalty option.

This is not just a corn acreage decision for 2008 plantings, because soybean and wheat markets are currently indicating the need for more planted acres for the 2008 season.

Also, political and farm policy considerations also may impact Johanns’ decision. For example, some observers said Johanns would not likely want to allow CRP contract holders an early out without penalty just ahead of coming new farm bill conservation program negotiations via the House-Senate conference.

Brazil’s environmental protection agency, Ibama, said that it intends to complete its environmental impact study on a controversial Amazon highway by August 21. Dow Jones Newswires noted that BR-163 –– a mostly decrepit two-lane highway that connects north Mato Grosso state to the massive Amazon state of Para –– is seen as a cheap transport route for soybeans out of the Amazon River port of Santarem. The road, nicknamed the “Soy Highway,” is over 800-kilometers (500 miles) long and is awaiting Ibama’s green light before it gets paved. A paved road would cut transport costs by roughly $2 per 60-kilogram bag of soybeans for soybean farmers in northern Mato Grosso, Brazil’s largest soybean producing state, making it easier for them to invest in soybean expansion. Farmers and some industry leaders have begged the government to improve road conditions for the past 10 years in that part of the country, but environmental permits have stalled the BR-163 project in particular due to its location in the heart of the Amazon rainforest.

The China National Grain and OilsInformationCenter has cut its 2007 soybean output forecast to 14.8 million tonnes because of an ongoing drought, according to its monthly report. The government think tank previously expected soybean output to be 15 million tonnes in 2007. A drought that began in July has hit China’s northeast - a major soybean and corn growing region - but only about 10% of the corn acreage in Heilongjiang province is affected by a rare drought in the west of the province, it said.

The soy complex mixed on August 9 with the oil share continuing to erode as soybean oil was undermined by lower crude oil prices and soybean meal was bolstered by high EU grain prices. Traders expected as higher opening but the sharp break in the financial and metal markets and positioning ahead of the USDA Crop Production and Supply/demand reports helped spark some long liquidation selling. In addition, continued rain for the northern Corn Belt helped offset fears that a hot and dry pattern for the southern Midwest for this week will stress crops during the weather-sensitive pod-setting stage. Mid-day weather models opened the door for less heat east of the Mississippi this week and did not seem as hot and dry for the northern and eastern Corn Belt. August bean futures closed up $1.10, finishing at $315.26; September was unchanged, closing at $316.73; and November was down $0.09, ending at $322.51. August meal increased $2.20 closing at $256.06; September was $2.76 higher, finishing at $258.60; and October gained $2.87 to close at $261.13. August oil closed $7.50 lower to finish at $813.06; September was down $6.83, closing at $817.47; and October lost $7.05, closing at $821.87.

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