The USDA forecast the 2015-16 soybean harvest at 3.916 billion bushels based on an average yield of 46.9 bushels per acre. Both figures were above the government's previous forecasts and topped the high end of the range of market estimates.
Corn and soybean futures fell sharply after the report was released, with Chicago Board of Trade new-crop November soybean futures sliding 5.8 percent to its lowest since mid-June. December corn sagged 5.6 percent.
Dennis Gartman, author of the Gartman Letter, called it a "real shocking report," adding that the "bean and corn numbers are stunningly bearish."
The report surprised other market watchers, who have warned for months that the eastern flooding likely cut into soybean seedings and limited harvest potential in planted areas hit by the rains.
"The size of the increase was a surprise—it is a slap in the face," said Rich Nelson, analyst at Allendale.
Record soybean yields were forecast in eight states, including Minnesota and Nebraska. Yields were seen falling in Illinois, the biggest soybean state by plantings, and Indiana due to the rains.
Corn production was seen at a 13.686 billion bushels, with average yield projected at 168.8 bushels per acre. The corn yield outlook topped the range of market estimates. The production view was near the high end of expectations.
Harvested soybean acres were seen at a record 83.549 million acres, lower than the USDA's previous outlook. The USDA left its projection for harvested corn acres unchanged at 81.101 million.
The big crops will boost the supplies left of both commodities at the end of the marketing year.
Domestic soybean ending stocks for 2015-16 were seen at 470 million bushels, up 45 million bushels from the government's July estimate and above analysts' forecasts.
The outlook was the USDA's first bump to soy ending stocks since it first issued its expectations for the 2015-16 marketing year in May.
For corn, the USDA projected 2015-16 domestic ending stocks at 1.713 billion bushels, up from 1.599 billion in July and above the high end of trade forecasts.
It also raised its wheat ending stocks outlook to 850 million bushels from 842 million, below the average of analysts' estimates. The government, however, cut its export forecast while also lowering its winter wheat production view.
—CNBC contributed to this report.