US corn and soybean harvests will be smaller than previously forecast, with hot and dry weather during critical parts of the growing season dragging on yields, the government recently said.
Corn and soybean futures markets jumped as the US Department of Agriculture's (USDA) new harvest outlooks fell below market expectations, helping prices recover from near three- and two-year lows respectively.
"These are not paradigm shifts, but just enough decreases to make some shorts nervous," Charlie Sernatinger, analyst with Marex Capital, said.
"It feels like the market should continue to rally today."
Despite the production cuts, waning export demand for both crops was expected to leave an ample stockpile for domestic end users including livestock feed and biofuel makers.
Chicago Board of Trade soybean futures, which hit near two-year lows overnight, surged 2.9% after the USDA's monthly World Agricultural Supply and Demand Estimates report was released, on track for their biggest daily gain in three months.
The report pegged the corn harvest at 15.064 billion bushels and the soybean harvest at 4.104 billion bushels.
It estimated average yields at 173.0 bushels per acre for corn, and 49.6 bushels per acre for soybeans.
If realised, the corn harvest would still be the third biggest on record.
Analysts had been expecting the report to show a corn harvest of 15.101 billion bushels with an average yield of 173.5 bushels per acre, and a soybean harvest of 4.134 billion bushels based on an average yield of 49.9 bushels per acre.
Anecdotal reports of bigger-than-expected harvest yields across the Midwest during the past few weeks had raised the possibility that the USDA would increase its production forecasts, contributing to the market response.
"You had whispers out there that they might raise the yields instead of drop them," said Jim Gerlach, president of AC Trading.