U.S. corn and wheat futures stumbled Thursday, fueled by investors' disappointment with world supply estimates from the U.S. Department of Agriculture.

Traders looking for larger cuts in South American corn crops than the USDA verified in a monthly world supply and demand report Thursday were let down, said Rich Feltes, vice president of research at brokerage RJ O'Brien in Chicago.

Corn prices had jumped 10% since mid-December as traders priced in the risk of smaller crops in South America resulting from dry conditions. The USDA's monthly crop report Thursday to a large degree confirmed what traders already knew.

The agency reduced its outlook for production in Argentina by 15% to 22 million metric tons. Analysts had expected forecasters to cut their outlook for Brazilian output as well, but the USDA kept its estimates the same.

Industry analysts still feel the USDA is overstating Argentina and Brazil production. The USDA, however, can't be proven wrong until harvest, and with no immediate weather problem to fuel new buying, traders took profits on recent advances, said Dan Cekander, analyst with brokerage Newedge LLC in Chicago.

Corn futures did manage to rally to a one-month high after the report was released on technical buying, but erased those gains to finish down 5 1/2 cents, or 0.9%, to $6.37 a bushel.

Other agriculture commodities fell on Thursday's report, with wheat futures prices dropping after the USDA increased its outlook for global supplies. The USDA report confirmed there is no fear of supplies tightening, said John Kleist, senior analyst with ebottrading.com in McHenry, Ill.

The wheat market rallied recently on concerns about production losses due to severe cold in Europe and the Black Sea region. The U.S. competes with supplies from those areas in the export market. However, the USDA forecast world wheat stockpiles at record levels, which would buffer any potential declines from the region.

Chicago Board of Trade March wheat ended down 14 3/4 cents or 2.2% to $6.46/bushel, March Kansas City Board of Trade wheat ended down 18 cents at $6.92, and March Minneapolis Grain Exchange wheat dropped 9 3/4 cents to $8.31 3/4.

Soybean futures declined 4 cents, or 0.3%, to $12.27 1/2 a bushel as federal forecasters kept estimates for U.S. supplies the same, but cut their outlook for the upcoming crops in Argentina and Brazil.

Oats stumbled in unison with general weakness in grain futures, garnering added pressure from larger USDA supply estimates. Government forecasters estimate U.S. oat stockpiles at the end of the marketing year will be 10 million bushels larger than previous forecasts on higher import totals

Oats for March delivery finished down 10 cents to $3.18 a bushel.

-By Andrew Johnson Jr, Dow Jones Newswires; 312-347-4604; Andrew.johnsonjr@dowjones.com

(END) Dow Jones Newswires

February 09, 2012 16:31 ET (21:31 GMT)