UPDATE 1-U.S. government cuts corn, soy supply view on falling harvest forecast

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CHICAGO, Oct 9 (Reuters) - U.S. corn and soybean supplies will be smaller than previously forecast, as adverse weather reduced the acreage that farmers will harvest, the U.S. government said on Friday.

Soybean stocks were pegged at a five-year low, with rising exports eating into the stockpile, according to the U.S. Agriculture Department’s monthly World Agricultural Supply and Demand Estimates Report.

A derecho windstorm that tore through the top production state of Iowa and flattened corn in key growing areas reduced overall harvest potential, USDA said.

“Big takeaway - soybeans are going to get tighter, going to help everyone else along as it goes,” said Craig Turner of Daniels Trading. “That just makes that South American crop that much more important.”

The outlook added fuel to a weeks-long rally that stemmed from a pick-up in export demand from China. Chicago Board of Trade soybean futures surged to their highest in more than 2-1/2 years after the report was released while corn hit a one-year top.

U.S. corn production was lowered to 14.722 billion bushels from USDA’s previous estimates of 14.900 billion and soybean production was trimmed to 4.268 billion bushels from 4.313 billion.

But even with the smaller overall harvests, yields were still pegged at record highs for both crops. Soybean yields were expected to average 51.9 bushels per acre and corn yields 178.4 bushels per acre.

USDA cut its forecasts for corn ending stocks by 336 million bushels to 2.167 billion bushels and soybean ending stocks by 170 million bushels to 290 million. It bumped its soybean export forecast by 75 million bushels to 2.200 billion bushels. The government lowered its corn usage forecast due to decreases in demand from the ethanol sector and the feed and residual category. (Additional reporting by Christopher Walljasper; Editing by Richard Chang)