"There is a little more breathing room, but the reality is that this year isn't the problem, the problem is next year," Jerry Gidel, analyst for North America Risk Management Inc., said, referring to a potential sharp drawdown in the US corn supply during 2008.

The US Department of Agriculture said Tuesday the amount of corn in the United States at the end of the current 2006/07 marketing year on Aug. 31 would total 877 million bushels.

That's still less than half the carryout from last year of nearly 2 billion bushels, yet it was more than 100 million bushels more than the USDA's February forecast of 752 million.

USDA's aggressive reduction of 125 million bushels in the amount of corn used for feed surprised grains analysts.

"The reduction on the feed and residual, I can't argue against it, but I thought it would be spread out over several months," said Shawn McCambridge, analyst for Prudential Financial.

"If they feel confident enough to take 125 million off this month, they are probably going to see some additional reductions," he said.

USDA left unchanged its outlook for the amount of corn to be used in the ethanol sector at 2.150 billion bushels, which nearly rivals the level of corn to be exported at 2.250 billion bushels.

Last year, only 1.6 billion bushels of corn were turned into fuel and two years ago the total was 1.3 billion, according to the USDA.

USDA trimmed to 422 million bushels its forecast for US wheat ending stocks for 2006/07, from its March outlook for 472 million, with the government earmarking an extra 25 million each for feed and exports.

USDA raised to 615 million bushels its outlook for soybean ending stocks, a record high, and also increased its forecast for South American soybean production.

Analysts said Tuesday's report was bullish for US wheat futures markets and bearish for corn and soybean futures.

"This is certainly not a bullish number at all for soybeans, with stocks at 615 million bushels. That's just a lot to get rid of," said Jack Scoville, analyst with The Price Futures Group in Chicago.

"Wheat stocks at 422 million are probably just neutral. We know there's been some shift of feeding from corn to wheat," he said.

Analysts also conceded the USDA's latest supply and demand data, while important, was being overshadowed as a market factor because cold and wet weather in the United States was stalling corn plantings and hurting the winter wheat crop.

"I think the weather is still going to be the trump card," said Don Roose, president and analyst at US Commodities in Des Moines, Iowa.