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(Bloomberg) — The U.S. government made surprise cuts to its outlook for global corn and wheat stockpiles amid signs of improving grain demand. The forecast for world corn stockpiles was smaller than the lowest prediction in a Bloomberg survey of 16 analysts, a U.S. Department of Agriculture report showed March 10. The agency also reduced its estimate of domestic reserves for both grains. Corn and wheat futures climbed on Wednesday. Smaller grain inventories can help to revive crop prices after surging world harvests drove the Bloomberg Agriculture Index down 27 percent in the past year. Improving demand for U.S. corn exports will erode American stockpiles, while global use of the grain in livestock feed will climb, the USDA said. “The overall conclusion is corn demand has been better than expected,” Bryce Knorr, a Chicago-based senior grain- market analyst at Farm Futures, said in a telephone interview. “Prices are cheap, and we have a growing livestock herd. The pace of exports is quite good, even if sales are a little slow.” Corn futures for May delivery advanced 0.6 percent to $3.9025 a bushel on the Chicago Board of Trade at 10:12 a.m. in Singapore, after falling 0.2 percent on Tuesday. The most-active contract has dropped 1.7 percent in 2015. The grain plunged 43 percent in the previous two years after farmers harvested record crops in the U.S., the world’s top grower. World food prices tracked by the United Nations extended a drop to the lowest since July 2010 last month amid bigger global crops.

‘More Nervous’

World corn stockpiles before this year’s harvest in the Northern Hemisphere will total 185.28 million metric tons, the USDA said. That compares with 189.64 million forecast in February. Analysts surveyed by Bloomberg were expecting 189.84 million, on average. The agency reduced its estimate for domestic reserves for a fifth straight month amid a better outlook for exports. The USDA’s cuts to the inventory outlook mean that “the corn market will be more nervous about the outcome of this year’s growing season,” Don Roose, president of U.S. Commodities Inc. in West Des Moines, Iowa, said in a telephone interview. “All attention will shift to the start of the planting season next month,” Roose said. “Today’s report will put a floor under the market until more is known about the weather this year.” Wheat futures for May delivery rose as much as 1.7 percent to a one-week high of $5.0175 a bushel in Chicago. A fourth day of gains would be the longest streak since Dec. 18.

Wheat Reserves

U.S. wheat inventories will total 691 million bushels at the end of May, the government said. That’s 0.1 percent smaller than expected in February and the agency’s first cut to its outlook since November. Global stockpiles will also be smaller than forecast last month as ranchers use more of the grain in livestock feed than expected, the USDA said. “The report confirms that there’s maybe a little less wheat for food consumption,” Terry Reilly, a senior commodity analyst at Futures International LLC in Chicago, said in a telephone interview. “The increase in wheat feeding globally shows you the quality of global wheat is not as good as what people were previously anticipating.”

–With assistance from Ranjeetha Pakiam in Kuala Lumpur.

To contact the reporters on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net; Lydia Mulvany in Chicago at lmulvany2@bloomberg.net To contact the editors responsible for this story: Millie Munshi at mmunshi@bloomberg.net Ovais Subhani, Sungwoo Park