U.S. corn futures are poised to open sharply lower Wednesday following the government's unexpected increase in domestic supplies.

Traders predict Chicago Board of Trade corn will open anywhere from 10 to 30 cents lower following the U.S. Department of Agriculture's report, which projected U.S. corn inventories as of Aug. 31 at 730 million bushels, up from an April estimate of 675 million.

The increase was due to a reduction in exports, a sign that recent record-high corn prices have scared off some buyers. Half the analysts in a Dow Jones Newswires survey had expected the USDA to keep supplies steady at 675 million, and the average analyst forecast was 665 million.

"There is nothing friendly about today's report," MF Global Joseph Vaclavik said in a report to clients.

That said, traders and analysts saw the report as more negative for nearby CBOT contracts than back months. The report all but "destroys" the bullish story for corn, which was focused on scarce near-term supplies, said Chad Henderson, analyst for Prime Ag Consultants. He expected old crop contracts to lose ground versus new crop.

The government's projected ending stocks for the 2011-12 marketing year were also higher than expected at 900 million bushels. But the new crop projection is seen as less reliable because the crop hasn't even been planted yet in many areas.

Henderson noted that the USDA appeared to already be scaling back expectations of the 2011 U.S. crop due to a slow start to planting. The projected U.S. yield of 158.7 bushels per acre, while up from the 2010 yield of 152.8 bushels per acre, is nonetheless below the trend-line yield of about 162 bushels, Henderson said.

"There is still too much uncertainty regarding new crop production to 'kill' the market, in our opinion," Vaclavik said. "We still have no real concept of what type of weather patterns will be seen in July. Corn and soybeans both may have to maintain some sort of price floor simply because of this uncertainty."

Despite the USDA's upward projections, supplies are still very tight. Ending stocks in the 2009-10 marketing year, by comparison, were 1.7 billion bushels.

In overnight trade, front-month corn for May delivery was up 3 cents to $7.09 per bushel while July corn, the most active contract, was up 2 3/4 cents to $7.10. Vaclavik said given Wednesday's report he would not be surprised to see the July contract test last week's low of $6.80.

December corn, which represents the crop being planted now, was up 1 1/2 cents to $6.54 1/4 overnight.