(Adds analyst comment, market reaction)
By Mark Weinraub
WASHINGTON, March 9 (Reuters) - U.S. soybean supplies will be bigger than expected at the end of the marketing year as a record harvest in Brazil will flood the global market, cutting into demand for U.S. exports, the government said on Thursday.
The U.S. Agriculture Department in its monthly supply and demand report raised its outlook for soybean end stocks for the 2016/17 marketing year by 15 million bushels to 435 million bushels. The bump reflects a 25 million-bushel reduction in U.S. soybean exports, which is partially offset by a 10 million-bushel increase in soybeans crushed by domestic processors.
Chicago Board of Trade soybean futures sank to their lowest level in eight weeks after the report was released.
Analysts had expected the report to show soybean ending stocks of 418 million bushels, according to the average of estimates in a Reuters poll. Estimates ranged from 400 million bushels to 444 million bushels.
For corn, the government held its end stocks view and export forecast steady despite raising the outlook for Brazil corn production. The outlook for domestic wheat ending stocks was cut by 10 million bushels due to a reduction in imports.
"They really jacked up the corn and soybean estimates for Brazil," said Jack Scoville, analyst at the Price Futures Group. "It's a headline-grabber and you're seeing some knee-jerk selling because of it."
USDA pegged U.S. corn end stocks at 2.320 billion bushels and wheat end stocks at 1.129 billion bushels. That compares with the average of analysts' forecasts of 2.317 billion bushels for corn and 1.135 billion bushels for wheat.
Corn futures sank to their lowest level since Feb. 27 after. Wheat futures showed little reaction to the report.
The forecast for Brazil's soybean crop, which is currently being harvested, was raised by 4 million tonnes to 108.00 million tonnes, above the average of analysts' estimates.
Corn production in Brazil was raised 5 million tonnes, to 91.50 million.
USDA left its soy production estimate for Argentina, another key exporter, unchanged at 55.50 million tonnes. The corn crop in Argentina was seen at 37.50 million tonnes, up 1 million tonnes from a month earlier.
The government raised its estimate of world ending stocks for corn and soybeans to account for the increased South American production.
It pegged global corn ending stocks at 220.68 million tonnes, and global soybean ending stocks at 82.82 million tonnes. Global wheat ending stocks were raised to 249.894 million tonnes.
Additional reporting by Michael Hirtzer in Chicago; Editing by Andrea Ricci and Matthew Lewis