American Farm Bureau Federation (AFBF) economists says today’s USDA crop forecast is a “harbinger of volatility in global grain markets.”

“There is an old saying in commodity markets that small crops tend to get smaller,” said AFBF economist Todd Davis. “If this holds true, then future reports will show declining projected production for corn and soybeans and further reductions in projected demand. This will also mean higher projected prices and great volatility in the commodity markets as demand is rationed and more supply is encouraged worldwide.”

Farmers in South America are taking note of the lowered corn and soybean projections of the U.S. and Davis believes this will be the basis for much attention and speculation.

“A bountiful South American corn and soybean crop should ease the pressure for exports from the U.S. and will help relieve concern over tight stocks,” said Davis. “As always, weather will be the focus both in the North American crops as well as in South America,” he cautioned.

USDA now forecasts U.S. corn production at 10.8 billion bushels, down 13 percent from 2011 and the lowest estimated production levels since 2006. Soybean production is now estimated to be 2.69 billion bushels, down 12 percent from 2011 and the lowest production since 2007.