Potentially, the crop may get even smaller. USDA's report was based on conditions as of August 1. The conditions and yield potential of the crop appear to have declined further since then. News on the demand side has not been particularly favorable. Renewed funding of Step 2 is expected and the market has likely already factored that in.
Price seems to be keyed on the supply side right now.
September may well be a pivotal month. The August report was likely enough of a shock to hold prices up for the time being. If USDA's September report again confirms a crop of 18.3 million bales or less, we may see further strength in price. Prices will likely stall in the 56-58 cents area, however, and the longer term direction may still be down if export business is weak. There are many sources of risk in marketing the '99 crop.