Harsh weather from Russia and across Europe to the US will reduce the global wheat harvest and cut into consumption, the US government forecast on Tuesday, with the biggest losses in Russia.

In a monthly update of the crop outlook in the US and around the world, the Agriculture Department projected a record-large corn crop. Traders were skeptical because recent hot and dry weather in major corn producing states could cut yields.

US soybean supplies will shrink to a three-week supply in August at the end of this marketing year and shrivel to a two-week supply in August 2013, the second-smallest total in 10 years, said USDA.

Soybean futures prices surged 16-1/4 cents at the Chicago Board of Trade when USDA released its forecasts. But an hour later, prices were just 5 cents higher. Corn was down 0.6 percent and wheat was down nearly 1 percent.

Wintertime frost and dry spring weather reduced Russia's wheat crop by 5 percent, said USDA, which listed losses in European Union nations, Turkey and the United States.

"Russia production is reduced 3.0 million tonnes due to a continuation of spring dryness and indications of crop development problems resulting from winter freeze damage," said USDA. It estimated the crop at 53 million tonnes and exports of 16 million tonnes, down 2 million tonnes from the May forecast.

With a smaller global crop, wheat consumption will drop by 1 percent, with less wheat used for food and livestock feed.

Partially offsetting the smaller wheat crop would be a marginally larger coarse grain crop worldwide. China was forecast to grow 195 million tonnes of corn this year, up 1 percent from USDA's May forecast. China was planting more land to corn and less to soybeans, said USDA. China will import 5 million tonnes of corn this year and 7 million tonnes in 2012/13, the agency projected.

Analysts said they expected USDA would lower its forecast for US corn ending stocks in coming months. Analyst Shawn McCambridge of Jeffries Bache said USDA's projected corn yield of 166 bushels an acre "is still very suspect but we really don't get anything solid until USDA starts to get into the fields."     

The first USDA corn estimate based on field surveys will be in August. At the end of June, USDA will report on plantings of major crops and on the amount of corn, wheat and soybeans in the U.S. stockpile. Both reports are based on surveys at the start of the month.

Roy Huckaby, analyst with the Linn Group, said the tightening supply showed the need to ration soybean consumption. Analyst Rich Nelson at Allendale Inc, said of the USDA forecasts, "it's reflecting the fact that it's tight."     

An upturn in soybean exports this summer, "led mainly by higher projected imports for China," will pull down the U.S. stockpile and translate to smaller supplies in the coming year, said USDA. China was forecast to import 57 million tonnes of soybeans this marketing year, up 1 million tonnes from the May forecast, and more than 60 percent of soybeans on the world market.

US soybean supplies at the end of this marketing year were forecast by USDA for 175 million bushels and for 140 million bushels at the end of the 2012/13 marketing year. Both figures were slightly lower than traders expected.

The Agriculture Department forecast a winter wheat crop of 1.684 billion bushels, down 1 percent from May, as yields were lower than hoped. As a result, USDA lowered its forecast of t he overall US crop by less than 1 percent. Traders had expected a cut of 2 percent. - Reuters