REFILE-UPDATE 2-US corn crop shrinks, smallest stocks in 14 yrs

* Record US soybean crop, corn is No. 3 as yields fall

* USDA corn, soy forecasts are below trade estimates

* Corn, soy, wheat futures skyrocket to daily limit.

* Livestock futures, fertilizer shares rise on USDA news (Refiles to fix links to stories) (High grain prices drive livestock, ethanol, livestock)

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.

In a shock to markets, the U.S. Agriculture Department cut its estimate of the corn crop by 4 percent and soybeans by 2 percent based on conditions Oct. 1. Its forecast of crop size and a bare-bones level of season-ending stocks were well below analysts’ expectations and 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.”

At the Chicago Board of Trade, corn, soybean and wheat futures each rose by the maximum permitted daily amount. Corn for December delivery zoomed 30 cents to $5.28-1/4 a bushel, December soybeans rocketed 70 cents to $11.35 a bushel, and wheat shot up 60 cents to $7.19-1/4. [ID:nN08217278]

Futures prices soared as well in European grain markets and U.S. live cattle and hog futures surged as an inducement to producers to fatten livestock for slaughter in the face of rising feed prices. [ID:nLDE6971M2] [ID:nN08224525]

Fertilizer shares also rose, with analyst Edlain Rodriguez of Broadpoint Glecher saying farmers will need nutrients to expand corn production. Potash Corp POT.TO stocks were about 2 percent higher, Agrium AGU.TO and Mosaic Co MOS.N shares were up nearly 6 percent and CF Industries CF.N was up 8 percent. [ID:nN08221292]

Bids for cash ethanol jumped by 12 cents a gallon in response to the smaller corn crop, but there were few or no offers. Corn is the primary U.S. feedstock for fuel ethanol. [ID:nN08253096]

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. The standard blend is 10 percent. [ID:nN04118503]

After lowering its estimate of yields by 4 percent, USDA pegged the corn crop at 12.664 billion bushels. With high demand from feeders, processors and exporters, the corn surplus will shrink to 902 million bushels by the end of this marketing year, the smallest reserve since 883 million bushels in 1996/97. The stocks-to-use ratio would be a tight 6.7 percent.

Despite the slump, the corn crop would be the third-largest on record. The soybean crop would still would be the biggest on record.

Hot weather in August prevented corn and soybeans from reaching peak yields, traders said. Mid-September rains slowed the harvest in the Upper Midwest.

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.

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 larger than expected.

That report ended a rally and knocked corn prices below $5 a bushel for a week. December corn ended at $4.98-1/4 on Thursday. [ID:nN06279481]

With the harvest in full swing, the Agriculture Department reported a downturn in corn yields from Ohio to Nebraska. The U.S. average yield is pegged at 155.8 bushels per acre, down 4 percent. 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.

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.

The USDA says its corn estimate has a margin of error of 5.4 percent and soybeans 4 percent. In 11 of the last 20 years, the USDA’s October forecasts were larger than the final figure which is issued in January. (Reporting by Charles Abbott, Roberta Rampton, Christopher Doering and Emily Stephenson; editing by Jim Marshall)