U.S. grain and soybean futures tumbled Wednesday after federal forecasters said end-of-season inventories won't be as tight as previously expected.

Corn dropped the maximum amount allowed under exchange rules as the forecast eased supply concerns that drove prices to record highs last month. The market fell to its lowest level since March 31, when a lower-than-expected inventory estimate shocked traders and pushed prices up the daily limit.

"Supplies are inching a bit bigger," said John Roach, president of Roach Ag Marketing, an agricultural advisory firm in Florida.

The U.S. Department of Agriculture, in Wednesday's monthly crop report, raised its forecast for U.S. corn supplies as of Aug. 31 to 730 million bushels, an 8% increase from last month's estimate. The agency also increased its outlook for U.S. soybean inventories. Driving the increases is a recent pullback in export demand as high prices cool interest among foreign buyers.

The increase in corn inventories caught traders and grain buyers by surprise as many expected the USDA to keep its forecast unchanged, particularly since last month's report was widely viewed as underestimating demand.

Corn for July delivery, the most actively traded contract, sank the 30-cent limit, or 4.2%, to $6.77 1/4 a bushel at the Chicago Board of Trade. The limit will temporarily expand to 45 cents Thursday.

Also at the CBOT, soybeans for July delivery lost 6 1/4 cents, or 0.5%, to $13.31 3/4 a bushel. Soft red winter wheat for July delivery dropped 39 3/4 cents, or 5%, to $7.59 a bushel.

"There is nothing friendly about today's report," said Joseph Vaclavik, a broker for MF Global in Chicago.

Yet the setback may only be temporary due to concerns supplies will be uncomfortably low in the upcoming 2011-12 marketing year, which starts in September for corn and soybeans. Grain and oilseed prices are likely to stay at above-trend levels because supplies remained tight in the USDA's initial assessment of the 2011-12 corn crop, according to Susquehanna International Group.

Federal forecasters projected 2011-12 season-end corn supplies at 900 million bushels, below the traditional comfort level of 1 billion bushels. The tight supplies leave grain users nervous about potential weather threats to the crop that farmers are planting this spring for harvest next fall.

"The market's focus will quickly turn back to the weather," Susquehanna told clients in a note.

The limit-down drop in corn kept wheat under pressure, as both grains are used for livestock feed. The government's crop reports were mainly considered neutral for wheat futures.

Other Markets

July ethanol ended down 3.8% at $2.479 a gallon, following the slide in corn prices. July oats dropped 2.8% to $3.42 a bushel, while July rice slid 1.5% to $13.95 1/2 per hundredweight. July soyoil ended down 0.9% at 56.29 cents a pound, and July soymeal shed 0.8% to $347.60 a short ton.

At the Kansas City Board of Trade, hard red winter wheat for July delivery lost 3.1% to $9 a bushel. Hard red spring wheat for July delivery tumbled 3.5% to $9.25 1/2 a bushel at MGEX in Minneapolis.