(Recasts; updates prices, adds new analyst quote)
By Mark Weinraub
WASHINGTON, Oct 12 (Reuters) - The U.S. Agriculture Department lowered its outlook for U.S. soybean yields and said massive stockpiles that have weighed on prices will be smaller than previously forecast due to strong demand.
The surprise yield outlook pushed soybean futures up 2.1 percent to their highest in more than two months even though the government’s bump to harvested acreage left the production outlook for the oilseed largely unchanged.
“On soybeans this now allows us to get past a fear of how big this crop might be, and we can focus on the strong demand,” said Arlan Suderman, chief commodities economist at INTL FCStone.
In its monthly crop production report, USDA also raised its domestic corn production outlook as record yields in areas outside the major producing states boosted the size of the overall harvest.
USDA pegged the corn harvest at 14.280 billion bushels, based on an average yield of 171.8 bushels per acre. That compares with its September forecasts of 14.184 billion bushels and an average yield of 169.9 bushels per acre.
Corn futures rose despite the increased harvest expectations, following gains in soybeans.
USDA said it expected record yields in Alabama, Georgia, Idaho, Kentucky, Louisiana, Michigan, Mississippi, Pennsylvania, South Carolina and Tennessee, all of which are outside the main crop belt. It also raised its yield outlook in key producing states such as Illinois, Iowa and Indiana.
The soybean harvest was seen at a record 4.431 billion bushels with yields trimmed by 0.4 bushels per acre to 49.5 bushels per acre. Harvested acres were raised to 89.471 million from 88.731 million.
Analysts had been expecting a corn harvest of 14.204 billion bushels on a yield of 170.1 bushels per acre and a soybean harvest of 4.447 billion bushels on a yield of 50.0 bushels per acre, based on the average of estimates given in a Reuters survey.
USDA also raised its outlook for U.S. corn ending stocks to 2.340 billion bushels, up 5 million bushels from September.
Wheat ending stocks also were raised, to 960 million bushels, with the USDA citing increased usage of corn, which is expected to cut into demand for wheat in the feed and residual sector.
Soybean ending stocks for 2017-18 were lowered to 430 million bushels from 475 million bushels. USDA increased the usage in the residual category for the 2016-17 crop year, which cut into the supplies at the start of 2017-18.
Additional reporting by Tom Polansek in Chicago; Editing by Paul Simao and Tom Brown