The US corn supply is far larger than thought and a bumper crop could be on the way, the Agriculture Department said on Thursday in a report expected to shock markets.

In a dramatic turnaround from fears of bare-bones supplies, the USDA said plantings and stockpiles were significantly larger than traders had forecast, which could signal comfortable supply levels for the coming year and ease fears about high world food prices.

"I think we go limit lower today, especially on corn. There are some big surprises in this report," said Karl Setzer, commodity trading advisor for MaxYield Cooperative in West Bend, Iowa.   

Corn prices had already slid 20 percent from their peak of near $8 per bushel, reached three weeks ago, and the report was expected to accelerate that move.

"We planted more acres than the trade had thought earlier in the year because we sent the signal to plant," said analyst Don Roose of US Commodities. "The other thing was, we did find a way to slow down usage."    

Red-hot demand from exporters, livestock feeders and processors had been expected to consume every bushel grown in 2010 and eat into reserves, but the higher stocks number was a sign that demand has been rationed.

The USDA said the corn stockpile was 3.67 billion bushels on June 1 -- 11 percent larger than traders expected -- and plantings were 2 percent larger. With normal weather and yields, a record-large crop could be harvested.

But weather conditions have been far from normal, with flooding in key areas of the US Midwest. While USDA projections bode well for a record-large corn crop, the harvest is far from in the bin.

The soybean stockpile was 4 percent larger than anticipated by analysts, although plantings were 2 percent smaller. The soybean crop would still be the third-largest on record, but supplies are expected to run tight for another year. - Reuters