May 11, 2016 / 11:02 AM / in 2 years

GRAINS-Soy edges up towards 21-month high as supplies tighten

* Soybeans up for second day as USDA cuts supply outlook

* Strength of soy market helps boost wheat, corn prices (Adds quotes, updates prices)

By Nigel Hunt

LONDON, May 11 (Reuters) - U.S. soybean futures crept up towards the prior session’s 21-month high on Wednesday, buoyed by the U.S. government’s forecast of lower world supplies.

The Chicago Board of Trade’s most-active soybean contract had added 0.4 percent to hit $10.88-1/4 a bushel by 1042 GMT. The market climbed 5.2 percent on Tuesday to its highest since July 2014 at $10.91-1/2 a bushel.

“The immediate catalyst (for the soybean rally) was the USDA’s crop report,” said Tobin Gorey, director of agricultural strategy at Commonwealth Bank of Australia.

“The USDA is forecasting that soybean inventories, global and U.S., will sharply decline by the end of season 2016.”

World and U.S. soybean supplies will be tighter than expected for the next two years due to reduced harvests in South America and rising global demand, the U.S. Department of Agriculture said.

The agency cut its outlook for Argentine soy production by 2.5 million tonnes following heavy rains that damaged crops in the key exporter. It reduced its estimate for Brazil’s harvest by 1 million tonnes.

“The extent of the price surge is amazing given that most aspects had already been known long beforehand and had already driven prices up considerably in recent weeks: crop shortfalls in Argentina as well as in Brazil are driving global production in 2015/16 to below last year’s level,” Commerzbank said.

CBOT corn was up 0.3 percent at $3.82 a bushel, having gained 3.2 percent on Tuesday.

The USDA projected U.S. corn stocks would rise to 2.153 billion bushels by the end of 2016/17. The figure was below the average trade forecast of 2.294 billion, but would be the largest since the 1980s, if realised.

“The 2016/17 world corn balance sheet should be dominated by a bearish record-large U.S. corn output forecast,” Rabobank said in a note on the USDA report.

“However, the new season export forecast - now above even the 2014/15 season - combined with a steep increase in feed use, keeps stock buildings below market expectations.”

Wheat edged up, dragged higher by the strength of soybeans and corn, although the U.S. government report was seen as slightly bearish for the commodity with global wheat ending stocks for 2016/17 at a record high of 257.3 million tonnes.

CBOT July wheat was up 0.4 percent at $4.63 a bushel while September wheat in Paris rose 0.6 percent at 160.50 euros a tonne. (Additional reporting by Naveen Thukral; Editing by Joseph Radford and David Evans)

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