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WASHINGTON, April 10 (Reuters) - The U.S. Department of Agriculture (USDA) on Tuesday issued a surprise downward revision to its forecast for domestic soybean supplies as strong profit margins at processors encouraged them to crush more beans.
The government raised its outlook for wheat and corn ending stocks, reflecting decreased demand for both grains from the feed and residual sector.
Soybean futures rallied to their highest since March 9 after the report was released. Corn and wheat remained in negative territory.
In its monthly supply and demand report, USDA pegged soybean ending stocks for the 2017-18 marketing year at 550 million bushels, down 5 million from its March estimate.
It raised its estimate for soybeans used for crushing by 10 million bushels to 1.970 billion bushels. USDA left its U.S. soybean export forecast unchanged at 2.065 billion bushels.
Analysts had been expecting soybean ending stocks of 574 million bushels, based on the average of estimates given in a Reuters poll.
Despite USDA's lower forecast, soybean ending stocks would still be the second-biggest total on record if realized.
USDA also lowered its estimate for the Argentine soybean crop by 7 million tonnes to 40 million tonnes, and reduced its export outlook for that key South American supplier by 2.60 million tonnes to 4.20 million tonnes.
"We are seeing some benefit from what's happening with the short Argentina (soybean) crop, but not enough to offset the export business we lost in the first half of the marketing year," said Arlan Suderman, analyst at INTL FCStone. "We need a late-year surge in export business just to hit USDA's current target."
The harvest outlook for Brazil was raised to 115 million tonnes from 113 million tonnes. Brazil soybean exports were pegged at 73.10 million tonnes, up 2.60 million tonnes from USDA's March outlook.
For corn, USDA raised its domestic ending stocks outlook to 2.182 billion bushels, up from 2.127 billion in March.
USDA lowered corn usage in the feed and residual category by 50 million bushels and by 5 million bushels in the food, seed and industrial category.
The government also lowered its estimate of both Brazil's and Argentina's corn harvests and said that reduced competition was expected to impact U.S. exports during the first half of the 2018-19 marketing year.
For wheat, U.S. ending stocks were raised to 1.064 billion bushels from 1.034 billion bushels. Wheat usage in the feed and residual sector was cut by 30 million bushels.
(Additional reporting by Michael Hirtzer in Chicago, editing by G Crosse)