* Record US soybean crop, corn is No. 3 as yields fall
* USDA corn, soy forecasts are below trade estimates
* Corn, soy, wheat futures close "limit up"
* Livestock futures, fertilizer shares rise on USDA news (Updates with closing CBOT prices, more analyst comment)
By Charles Abbott
WASHINGTON, Oct 8 (Reuters) - The U.S. corn crop is likely to be far smaller than expected as late summer heat reduced yields across the Corn Belt, and the corn stockpile will shrink to less than a four-week supply by next fall, a government report said on Friday.
The U.S. Agriculture Department shocked market watchers, cutting its corn crop estimate 4 percent and soybeans 2 percent based on conditions Oct. 1. Its forecast of crop size and season-ending stocks sent grain prices soaring in Chicago.
"Smaller crops get smaller in both corn and soybeans," said Don Roose, president of U.S. Commodities in West Des Moines, Iowa. "Soybeans have lost their cushion. South America is going to be most important."
With the harvest in full swing, USDA reported a downturn in corn yields from Ohio to Nebraska. It pegged the average yield at 155.8 bushels per acre, down 4 percent from its prior estimate. USDA cut yields by 14 bushels an acre in Illinois, the No. 2 corn state; by 10 bushels an acre in Iowa, the No. 1 state; and by 9 bushels in Nebraska, the No. 3 state.
Hot weather in August prevented corn and soybeans from reaching peak yields, traders said. Mid-September rains slowed the harvest in the Upper Midwest.
On the Chicago Board of Trade, prices of corn, wheat and soybeans all rose by the maximum amount allowed in a day. Livestock and ethanol prices also rose, as did shares of fertilizer companies.
USDA lowered its estimate of yields by 4 percent and pegged the corn crop at 12.664 billion bushels. With high demand, the corn surplus will shrink to 902 million bushels by the end of this marketing year, the smallest since 883 million bushels in 1996/97. The stocks-to-use ratio would be a tight 6.7 percent.
Traders had expected a corn estimate of 12.96 billion bushels and ending stocks of 1.172 billion bushels. For soybeans, they expected a crop of 3.475 billion bushels and end stocks of 331 million bushels instead of USDA's estimate of a 3.408 billion-bushel crop and 265 million bushel carry-out.
USDA's estimate of wheat end stocks, 853 million bushels, was 2 percent lower than traders expected.
The average U.S. soybean yield was estimated at a record 44.4 bushels an acre, although down 0.3 bushels from a month ago.
Private consultant John Schnittker said USDA's steep reduction in corn yields "is almost unprecedented" and added that the stocks to use ratio "is pretty low, putting real pressure on acreage and yield next year."
The projected corn crop would still be the third-largest on record, and the soybean crop would be the biggest on record. Ethanol makers and corn growers said corn supplies will be adequate, although smaller.
At the CBOT, it was the first time since Aug 13, 2008 that corn, wheat and soybeans all settled limit up.
Corn for December delivery settled at $5.28-1/4 a bushel, up 6 percent. December soybeans were $11.35 a bushel, up 6.6 percent, and December wheat, at $7.19-1/4, was up 9 percent. Futures prices also soared in Europe.
Corn could top $6 a bushel next week, said analyst Shawn McCambridge of Prudential Bache Commodities in Chicago. [ID:nN08238158]
U.S. live cattle and hog futures surged as an inducement to producers to fatten livestock in the face of rising feed prices.
Fertilizer shares also rose, with analyst Edlain Rodriguez of Broadpoint Glecher saying farmers will need nutrients to boost production. Bids for cash ethanol jumped 12 cents a gallon but there were no offers. Corn is the main feedstock for U.S. fuel ethanol.
The Obama administration says it will decide in early October whether to allow a 15 percent blend of ethanol in gasoline for late-model cars, up from 10 percent.
It was the second market-stirring report by USDA in a week. On Sept 30, USDA said there were 1.708 billion bushels in reserve as this year's harvest began, far more than expected. That report ended a rally and knocked corn prices below $5 a bushel for a week. (Reporting by Charles Abbott, Roberta Rampton, Christopher Doering and Emily Stephenson; Editing by David Gregorio)