World and U.S. soybean supplies will be tighter than expected for the next two years due to reduced harvests in South America and rising global demand, the U.S. Agriculture Department said on Tuesday.

The report jolted the soy market, with the most active Chicago Board of Trade futures soybean contract surging 4.5 percent and hitting its highest since August 2014. Soymeal futures rallied to a 16-1/2-month peak.

"I did not see this coming," said Bob Utterback, chief executive officer at Utterback Marketing. "I do not think anyone did. It is that soybean number that has got everybody's attention."

USDA cut its outlook for Argentine soy production by 2.5 million tonnes following heavy rains that damaged crops in that key exporter. It cut its estimate for Brazil's harvest by 1 million tonnes. It also lowered its corn production forecasts for both countries.

In its first estimate of supplies for the 2016/17 crop year, the U.S. government projected ending stocks of U.S. corn would be the sixth-biggest ever, bolstered by a forecast for record production of 14.43 billion bushels.

U.S. wheat supplies for 2016/17 were seen rising to 1.029 billion bushels from 978 million bushels in 2015/16. The 2016/17 stocks figure was near the high end of analysts' forecasts.

Both corn and wheat futures followed soybeans higher, but the gains were kept in check by ample global supplies.

USDA estimated the 2016/17 U.S. winter wheat crop at an unexpectedly big 1.427 billion bushels, based on an average yield of 47.8 bushels per acre. If realized, that would match the record average yield set in 1999.

USDA lowered its outlook for 2015/16 U.S. soy ending stocks to 400 million bushels from 445 million, raising its outlook for exports by 35 million bushels and crush by 10 million bushels. Analysts, on average, were expecting 2015/16 soy ending stocks of 426 million bushels, according to a Reuters poll.

For 2016/17 U.S. soybean end stocks were pegged at 305 million bushels, 100 million below the average of estimates in the Reuters poll.

USDA put global soybean ending stocks at 74.25 million tonnes in 2015/16 and 68.21 million tonnes in 2016/17. Both were smaller than analysts' forecasts.

USDA cut its estimate for 2015/16 domestic corn ending stocks to 1.803 billion bushels from 1.862 billion, reflecting bigger exports. New-crop U.S. corn ending stocks were pegged at 2.153 billion bushels, below the average analyst forecast.