Today’s December crop report from the Agriculture Department shows continued tight supplies of corn, cotton and soybeans that will drive planting decisions for 2011, according to the American Farm Bureau Federation (AFBF).

“Grain stocks weren’t reduced as much as we had expected, with USDA only making minor adjustments to the corn, wheat and soybean balance sheets,” reports AFBF economist John Anderson. “USDA did, however, lower its cotton stocks forecast to 1.9 million bales, compared to 2.2 million bales in last month’s report.”

The USDA report indicates supplies of the three crops will be tight going into next year. That points to strong demand, higher prices and an increase in corn, cotton and soybean plantings in 2011, according to the AFBF economist.

USDA’s minimal change to the corn stocks forecast was a surprise part of the report, Anderson says.

“For the past few weeks, corn demand has been very strong, driven mostly by record-high ethanol production,” he says. “Ethanol production has continued to trend upward in recent weeks, and we would have expected USDA to show a small drop in the corn carryover level, or at least some adjustments within the various corn-use categories, but they didn’t. They basically stayed put with the demand side of the corn balance sheet.”

The December report boosted corn carryover stocks to 832 million bushels from 827 million bushels, and the change was driven by an increase of imports by 5 million to 15 million bushels.

“USDA may be expecting demand for ethanol to slow down, but higher oil prices and a generally weak dollar may continue to support strong ethanol production,” Anderson says.

Thus, the corn supply remains very low at a 6% stocks-to-use ratio which should keep prices fairly strong overall.

For soybeans, USDA showed a sizable drop in stocks from 185 million bushels estimated in the November report to 165 million bushels in the December report.

“The tight supply situation in soybeans may encourage farmers to plant more beans next year, but with corn and cotton stocks also very low, competition for acreage will be intense,” Anderson says.